In the 39th annual edition of their flagship research paper "Money into Property" global property consultants DTZ said that in 2012 £16.1 billion of London commercial investment property was bought by investors than in the entire rest of the UK for the first time, where the total was £15.9 billion.
“The surge in investment activity in central London can be linked to very strong demand for prime U.K. assets from foreign investors,” Ben Burston, head of U.K. Research at DTZ, wrote in a report today. “London offers large lot sizes and liquidity.”
Overseas investors accounted for £16 billion of total U.K. commercial property purchases last year, 61% more than in 2011. Britain is Europe’s largest property market and the second-most liquid market in Europe after Sweden, DTZ said in the report.
“Good liquidity is essential,” Hans Vrensen, global head of research at DTZ, said in a statement. “If you cannot buy into and then later sell out of a market, relative value is immaterial.
“We highlight the U.K. alongside the U.S., Germany, China and Japan as especially attractive to international investors,” he said.
But while London may be attractive for overseas investors, DTZ say that UK regional markets offer better returns, and non-prime secondary property, shunned by the pension funds and other professional investors are where the bargains are to be found.
DTZ research shows that non-prime void rates for office property are lower than for prime property. This means that the risks may be more perceived than actual for non-prime.
Investors are switching out of central London into the wider South East according to a Savills recent report, after achieving double-digit total returns in 2012 total returns in central London have peaked.
Assets like M25 and provincial offices in that sector and leisure sector assets, especially regional hotels are offering better yields.
The financing of this activity has changed as investors have replaced bank debt, with more funding from insurers, pension funds and the bond market as bank deleveraging has continued.
The value of UK commercial property non-bank debt rose 35% last year to £20.6 billion, which has helped the market recover from the liquidity driven fall.