A recently published Property Data Report by the Property Industry Alliance suggests overseas investors now own almost a quarter (24 per cent) of all commercial property investment in the UK, most of it in London.
Is this a measure of health or a health warning?
Let us put things in perspective. The UK is probably the best commercial property market in Europe.
It is the most transparent (according to JLL’s transparency index), the most liquid (representing 37 per cent of European transaction activity) and has the longest leases.
Deals take three months to complete (versus six months in the continent) and everyone speaks English.
So, clearly, if you want an international real estate portfolio, you need to have some sizeable exposure to the UK.
Growing global market
Foreign ownership is well established in other asset classes – circa 50 per cent of shares forming the FTSE 100 index companies are foreign owned and only one of the ‘big six’ energy suppliers in the UK is actually British owned.
Equities are arguably easier to transact than real estate, but in an increasingly globalised world, even real estate (a quintessentially local business) is increasingly becoming global.
“Agglomeration, amenities and human capital are key elements of an economically successful city – London excels at all.”
The fact that London and the South-east are attracting the lion share of foreign interest is not surprising. London is in a league of its own. It is a global city, with a high concentration of world-class businesses and human capital.
Manchester or Glasgow, while important in a UK context, remain predominantly British cities.
This is a fundamental insight of urban economics – agglomeration, amenities and human capital are key elements of an economically successful city – London excels at all.
Foreign interest in UK commercial property is definitely a sign of health.
Having an attractive asset market to foreign investors always brings dividends to the UK economy and makes UK-based investors better by having to compete with different ways of doing business.
Yet, without London’s status as a global city, without the liquidity and transparency of the UK property market, and without the human capital coming out of British (and other international) universities (irrespective of the students’ nationality), the UK would not be as attractive as it is today.
And this brings me to the last point. Curbing skilled migration would be a great mistake.
Capital moves where there is skilled labour to use it; innovation is better achieved when there is a concentration of educated people who both co-operate and compete to create wealth.
Limiting the number of such people may also deter overseas capital from coming to the UK in the long term, and this will be detrimental for us all.
Jose Pellicer is an associate partner at Rockspring