London Office Deals Are Outpacing Manhattan

(Bloomberg) -- London notched up 16.2 billion pounds ($21 billion) of investment in commercial real estate last year, beating out Manhattan for the top spot globally despite mounting anxiety about Brexit.

In fact, the pound's 13 percent decline against the dollar since Britain's 2016 vote to leave the European Union, together with enduring demand from tenants for office space, have proven a draw for overseas investors, according to research by Knight Frank LLP. China and Hong Kong poured the largest share of foreign cash -- 3.5 billion pounds -- into London offices in 2018, followed by South Korea, the broker said in a report.

“A lot of these investors are looking for yield, and Brexit is giving them that,” with London now cheaper than Paris, Frankfurt and Berlin, said Nick Braybrook, Knight Frank's head of central London capital markets. “If it weren't for Brexit, there is no reason why London yields wouldn't be as low as Paris and Berlin.”

Investors from Hong Kong and South Korea in particular have flooded into London in the past two years, focusing on buildings with long leases that allow them to benefit from the weak pound while protecting them from short-term uncertainty caused by Brexit. Last year's largest deals included the purchase of Goldman Sachs Group Inc.'s new European headquarters by Korea's National Pension Service for 1.2 billion pounds.

While total 2018 investment decreased slightly from a year earlier, the average deal size rose to a record 81.5 million pounds, Knight Frank said on Wednesday.

Investment from China and Hong Kong plunged by 51 percent last year from a record high in 2017, as the impact of capital controls curtailed spending by mainland Chinese buyers, Knight Frank said. South Korean investment in London grew eightfold, accounting for 16 percent of the total.

To contact the reporter on this story: Jack Sidders in London at jsidders@bloomberg.net

To contact the editors responsible for this story: Shelley Robinson at ssmith118@bloomberg.net, Patrick Henry, Chitra Somayaji

©2019 Bloomberg L.P.

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