I am fortunate to be a member of the Investment Property Forum, which is an organization, like a club, that only allows membership after you have been vetted as ‘suitable’. It’s website descriptor is;
“Set up in 1988, the Investment Property Forum (IPF) is the leading UK property investment organisation for individual members. It comprises an influential network of senior professionals all active in the property investment market.
The strength of the organisation lies in its diversity of its membership of over 2,000, including investment agents, fund managers, bankers, lawyers, researchers, academics, actuaries and other related professionals.”
Now I have done the intros to the IPF the point of this blog is that the event I attended was about the ownership of UK property. A number of things struck me and indeed surprised me which I have detailed below and just show the international finance driving the UK property market but primarily in London and a bot of the South East.
– 50% of London office stock is owned by foreign investors
– Foreign investors own 29% of London’s commercial property and it is growing at 8% pa.
– Overall retail property accounts for 45% (£293bn) of the total UK property value.
– London values have risen by 47% since 2003 whilst the rest of the UK have declined by 1%
– Overseas investors account for 24% of the growth since 2003 (+£88bn)
– The breakdown by property type is; standard retail is 15% (within the IPD index it accounts for 17%), shopping centres are 14% (IPD = 17%) and Retail Warehouses are 12% (IPD = 17%).
– The growth rates since 2003 reflect what we see in occupancy levels, which is that standard retail values have declined by -1%, shopping centres by -3% and retail warehouses have increased by +1%. In part this will be a reflection of the volume, quality and age of stock.
These numbers surprised me in terms of size and growth. What this also shows is that whilst London is doing well with regards investment activity and levels it is increasingly subject to macro shocks from around the world. It also begs the question of ‘what if’ these foreign investors retreat as France has seen in recent months? The other interesting fact was that the average lot size that foreign investors purchase is twice as big as UK investors, which is significant but also reflects the London bias. Clearly big is beautiful!
One point raised from the floor was – how much of this foreign investment is true investment versus money laundering? Interesting and any readers have an idea on the answer?
Last but not least the question of Scottish independence was raised and the value of Scottish commercial property as part of the UK total is a mere 6%.
The consequences of the figures above are that slowly but surely the UK investors are being forced to move to the regions and yields are compressing especially for shopping centres that dominate their town of which there are quite a few but they all need investment to achieve future rental growth and capital growth. The big question who will fill all these investments and how much more volatile will the market be with reduced lease lengths and occupiers being in the driving seat?