London real estate has potential to flourish post-Brexit so says international property consultancy Knight Frank. How are Asian investors viewing the opportunity?

London’s success as a business location saw 9.3 billion pounds of overseas money invested in Central London offices in 2016. About 80 percent of overseas capital invested originated from outside Europe, with investors from China and Hong Kong accounting for the largest bulk of overseas investment.

According to Knight Frank’s The London Report – 2017, the Central London property market has witnessed significant capital inflows since the referendum, despite the initial shock and pause for breath.

For London real estate, the shift towards a wider world of occupiers and investment capital is at an advanced stage. Last year, almost 75 percent of transactions involved an overseas buyer compared to 65 percent in Singapore and 42 percent in New York.

Chinese Buyers to Continue

A key theme for the market over the last few years has been the rise of the Chinese buyer, whose overseas investment appetite has grown exponentially.

While capital controls have been put in place in China to control outflows, Knight Frank expects Chinese investment into London to continue in 2017, although it may slow as overseas reserves are depleted and mechanisms of getting capital out of the country are being calibrated.

Commercial Real Estate Prevails

Office take-up in Central London for the final quarter of 2016 totalled 3.6 million square feet, driven by strong activity across the whole market. Seven of the ten largest occupier deals in 2016 were to overseas corporations, particularly from North America, which is the same as in 2015.

However, the fundamentals of the London office market are strong. In the leasing market, the tech firms have shrugged off Brexit and are taking space. In the investment market, overseas investors are showing a strong appetite for London offices. 

Sudden Currency Advantage

«Appetite for London commercial property from China and Hong Kong-based investors remains strong. Indeed, the currency advantage that resulted from the outcome of the referendum has made the U.K. in general even more attractive to these buyers,» said Nicholas Holt, Head of Research, Knight Frank Asia-Pacific.

For Knight Frank, despite the Brexit wobbles and the continuing geopolitical uncertainty, they view 2017 as a year that will surprise on the upside.