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North American Investors' Sell-Off of UK Property Hits 10-Year High

CoStar Market Insights: North American Investors Continued to Offload UK Commercial Property Through Mid-2018 as UK Sales Totaled US$4.05 Billion During Second Quarter
August 8, 2018
Major UK property dispositions by North American investors during the quarter included Blackstone’s sale of 20 Old Bailey for £341 million [US$439 million].

North American investors continued to offload UK commercial property in the second quarter of 2018 even as overall investment in UK commercial property picked up during the quarter, largely driven by Asian investor spending on City of London offices, according to CoStar’s latest UK investment report.

As a group, North American investors shed £3.15 billion (US$4.05 billion) of UK property investment over the second quarter. The net negative capital flow - the balance between acquisitions and disposals - of £2.9 billion (US$3.7 billion) in the second quarter marked a 10-year quarterly high.

The sales total was largely due to several big disposals in London, while the quarter was also the weakest for US investment spending on UK real estate since the first quarter of 2009.

Major property dispositions during the quarter included Blackstone’s June sale of 20 Old Bailey for £341 million (US$439 million), as well as two large hotel portfolios, which were among the three largest deals of the quarter. Starwood Capital completed the sale of 14 hotels (2,638 rooms) across the UK as part of the Principal Hotel Co. for £858 million (US$1.1 billion.) In May, Apollo Global Management sold the 20-property, 4,840-room Ribbon Hotel portfolio for £657 million (US$845 million).

The selling has continued into the third quarter with Blackstone’s sale of the Adelphi building in Covent Garden for £550 million [US$708 million] in August, and Goldman Sachs having agreed terms to sell and lease back its Midtown headquarters for circa £1.2 billion (US$1.54 billion.)]

Despite the disposition activity from sellers across the pond, foreign investment in the UK property sector was propped up by several large acquisitions made by Asian investors. During the second quarter, £3.3 billion (US$4.2billion) of the £6.3 billion (US$8.1 billion) of inbound foreign capital came from the Far East, 85% of which was spent on office properties in the City of London.

South Korean investment in particular continued to pick up momentum, growing 73% quarter-over-quarter to more than £540 million (US$695 million), the highest quarterly volume from this country since the fourth quarter of 2009.

The £1.3 billion (US$1.7 billion) invested by South Koreans in UK property over the past year was more than the total South Korean expenditure in the UK over the previous seven years combined.

Supporting this surge in sales volume were large several deals in London, including the purchases of 70 Mark Lane for £200 million (US$257 million) and 20 Old Bailey for £341 million (US$439 million).

The largest deal of the quarter, the £1 billion (US$1.29 billion)sale of the UBS Building in June, was an acquisition by Hong Kong’s CK Asset Holdings. The deal followed a quiet first quarter 2018 for Chinese and Hong Kong spending but indicates continued interest from the country.

The complete CoStar’s Q2 2018 UK Commercial Property Investment Review can be requested here.

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