Deloitte have recently published their annual publication ‘UK real estate predictions’ for 2013, and one of the most interesting foresight’s is the expansion of UK property investment by foreign interests. It is calculated that £20 billion in overseas investment was spent within the UK real estate market in 2012, and with the ongoing expansion of investment by existing investors, new investors, and a fast-growing pool of foreign capital, investment is expected to be higher than this figure for 2013.
Over the last few years, one of the most significant trends in real estate (property and construction) has been the large amount of capital investment coming into the UK real estate market from abroad. Foreign investment into the UK is nothing new, – a quarter of London’s property market was owned by foreign investors in the mid-90s – but things have evolved rapidly since then. The pool of capital from foreign investors is now much deeper than previously, many novice investors are making their first purchases, and many new foreign institutions have begun to expose themselves to the UK real estate market.
One of the major driving forces behind the increased investment activity has been the widespread establishment of pensions and insurance savings in developed and developing nations and emerging markets around the world. London real estate is associated with stability and good ROI, and this is marrying well with the desire of foreign institutions to gain bond-like assets that produce stable levels of income. With the recovery of commodity prices following the financial crisis, many new markets are emerging with the means to invest. It is reported that an extensive number of foreign institutions are planning to invest in 2013.
Though the wealth of many nations is variable and often lower than nations such as the UK, the size of their respective populations is resulting in funds that are more than large enough to invest. In many cases the scale of these funds is almost impossible to overestimate, and this coupled with the need for security and stability, levels of interest are remaining high and are unlikely to fall. Even in small and medium sized countries like South Korea and Malaysia, the need for pension funds for the diversification of investment portfolios is having a very significant affect on the UK real estate investment landscape.
Another trend is the expansion of relatively new funds. Funds which were new to the UK but a few years ago have now acquired the experience to push for higher returns away from the prime London property markets. As such, activity in regional areas is predicted to increase in 2013, as well are the amount of joint ventures between foreign investors and local funds managing the assets. More adventurous entities are likely to be attracted to development opportunities, perhaps partnering with UK funds or developers.
Investment has certainly not been limited to the commercial property market, and all signs point to increased investment in the residential market also. Strength in the international demand for high-value residential real property remains, though a recent and interesting trend shows emerging countries expanding their investment horizons and looking to affordable residential property situated in Greater London and further afield. Much of this is a result of the growing number of families with good levels of income in emerging countries. Such families are happy to see their public institutions diversify outside of local regions into ‘safe haven’ investment areas.
To conclude, the foreign demand for UK property, both residential and commercial, in London and outside, is continuing to support the UK property market and is very-much expected to exceed the investment levels of 2012.
Read more about commercial property and real estate in the UK.