London in 2018 has been a year characterised by resilience. Rumours of a mass business exodus were shrugged off as global corporations including Facebook, Sidley Austin, EBRD and BlackRock all pledged to remain in the UK, joining earlier announcements from Deutsche Bank, amongst others, in 2017. As global occupiers committed to London in the face of Brexit, so too did global investors, with volumes in November already 12.5 per cent ahead of the long-term annual average.

As Asian investors continue to be the dominant buyer group, we‘ve seen the return of South Korean investors who until January this year had more recently focused on continental Europe. Savills advised on the sale of 200 Aldersgate to Samsung SRA for £315 million in January that arguably triggered a wave of Korean investment into London with more than £3 billion of transactions expected to complete by year end. These investors are transacting in London because of the comparative value it offers, with prime yields in London considerably softer than other European tier one cities.

The rise of South Korean investors appeared to challenge the dominant lead held by Hong Kong parties in London in 2016/17. But the right assets will continue to attract the top prices that Hong Kong buyers, predominantly, are willing to spend as they look to diversify capital. This was demonstrated by CK Asset Holdings paying £1 billion for UBS’s headquarters.

2018 was also characterised by the return of UK buyers to the London market who, since the EU Referendum, aside from disposals, had been conspicuous by their absence.  As net sellers, UK funds grew to have large weightings of cash in need of reinvesting and London, with greater liquidity and returns than any other city in the UK, became an attractive option.

There’ s also renewed interest in more opportunistic deals, as investors bet on the long-term strength of London. With BP, IBM, ITV and Goldman Sachs all relocating in the city, their former headquarters each provide more than half a million square feet of development potential which the market will be watching to see where there is appetite to speculatively build.

As we near Brexit, investor groups without time-sensitive buying requirements may pause for thought in Q1 2019. Some of these investors will be watching to see if there is any greater clarity for the future of the UK once we leave the EU. Many of those who choose to wait will be doing so in the hope of getting a better deal, with the possibility a disorderly Brexit creating a further fall in Sterling and subsequent buying opportunities.

London’s position as a global safe haven is unlikely to change because of Brexit. Investors invest in London not just for its position in Europe, but for the property market’s liquidity, transparency and relatively low transactional costs packaged around long leases relative to other tier one cities and a landlord friendly lease structure.

The supply of a talented workforce is why companies continue to build their businesses here and as London remains one of the most desirable cities in the world to work, with its plethora of some of the best office buildings around the globe, the market continues to look good value compared to continental Europe.

Further information

Contact Savills Investment