Foreigners tip scales in City’s offices

Property in the City of London is for the first time majority owned by foreign institutions, as the global flight to safety continues to alter the landscape of UK real estate ownership.

Investors from Germany, the US and the Middle East have spearheaded an international buying spree which has seen foreign ownership of offices in the Square Mile soar to 52 per cent of total floorspace during the downturn.

The growth in foreign ownership, up from 8 per cent in 1980, represents the first time overseas institutions have outweighed domestic landlords in the London office market, according to a report published on Tuesday by Development Securities, the property group.

The shift feeds into a wider trend of changing ownership structures in the London property market. From City skyscrapers to upmarket town houses, overseas investors have poured billions of pounds into property in the UK capital, as they bid to find investments away from the volatility of the financial markets.

“There has been a vast amount of wealth created outside of London during the past few years and a lot of that money is now forcing its way in,” said Michael Marx, chief executive of Development Securities.

“The status of the City as a haven for wealth storage is just accelerating an already existing process,” he added.

One of the attractions of the London market to overseas investors, who now own an estimated 44m square ft of office space in the Square Mile, is its high volume of transactions.

Since the onset of the financial crisis, the office market in the UK capital has been the subject of €72bn ($97bn) worth of transactions, compared to €43bn in Paris and €11bn in Frankfurt.

As well as increasing their overall share of the City’s office market, foreign buyers have also targeted higher value buildings since 2008.

The report, which is published every four years, found that domestic buyers accounted for 43 per cent of all purchases by total floor space but only 34 per cent by value.

The average value of buildings acquired by UK buyers during the period of £27m ($42bn) was less than a third of the £91m average purchase price for overseas investors.

“These buyers are only looking for the best prime assets and the UK buyers cannot afford the best prime.

“You can see overseas ownership of prime City office getting up to 95 per cent in the future,” Mr Marx said.

Of the different countries with significant holdings in the City office market, Germany accounted for the largest non-domestic ownership with 16 per cent of the total stock.

Japan has seen its ownership of offices in the Square Mile slide from 11 per cent to 2 per cent during the past 15 years.