The Overseas Investor’s Love Affair With UK Commercial Property

It’s official: overseas investment in UK commercial real estate is on the rise. Even better, it’s expected to keep soaring over the next 3 to 6 months. And according to a confidence survey of real estate professionals by Lloyds Bank Commercial, this is having a hugely positive impact on the commercial property finance market.

The survey showed:

• 60% of UK investors see overseas investment in UK commercial property as a huge plus
• 70% of fund managers are confident about the future of UK commercial real estate
• 73% of larger sized businesses demonstrated similar confidence in the market
• 17% of all survey participants said they’d altered their business investment activity due to the influx of overseas capital
• 40% of larger businesses have changed their business investment plans due to the influx of overseas capital

Commenting on these results, John Feeney, global head of commercial real estate at Lloyds Bank Commercial Bank had this to say:

“For many regional commercial property operators the influx of foreign capital has widened the range of exit options and shifted focus away from UK institutional buyers.

“Further a variety of foreign buyers are now active in regional UK markets including sovereign buyers seeking stabilised assets and more opportunistic investors willing to take asset management risk,”

Despite this optimism about the overseas investment in UK real estate increasing over the next 3 to 6 months, about 25% to 36% believe that the market is actually going to level out. This was backed up by the Spring 2014 Certified Professional Contracts Manager (CPCM) report, which said that only 3% of major businesses thought prices would stay the same compared to 30% in this latest Lloyds survey.

“The UK’s market has soaked up a lot of capital over a short period of time and some investors, such as private equity funds, are turning their attention to the nascent investment market recovery in certain Eurozone countries particularly in the periphery,” said Feeney.

“The UK market is further advanced in the recovery and so our latest CPCM reflects a tempering of enthusiasm and the return of more normal levels of activity. Confidence still remains far higher by 55 index points for businesses and 94 points for fund managers than at the same stage two years ago,” he pointed out.

Interestingly enough, this observation actually differed between regions.

For instance, at the time of the survey (which took place prior to the Scottish referendum), those expecting a commercial property finance market upturn in Scotland dropped from 80% in April to 67%. London and North West-based Small and Medium-sized Enterprises were more confident about their own prospects over the next three to six months than of the market in general.

The regional differences were best summed up by Mark Ellis, managing director of SME real estate for Lloyds Bank Commercial Banking:

“Confidence remains high across the UK, particularly when SMEs consider their own business prospects. However, in Scotland there are signs that political uncertainty had an impact on those responding to our survey. With the referendum now concluded we’d expect optimism to increase.”

“London continues to buck the trend, however, as does the North West. Both markets have had incredibly strong years so far with occupier and investment activity continuing to rise. It’s reasonable to see more capacity for growth in each too, particularly in the North West which is still edging past its pre-crisis peak,” he added.

So going into 2015, the UK commercial property finance market is riding a positive wave of overseas investment interest. And as we wrap up 2014, now is the time to adjust your plans to take advantage of this trend in the new year.