A report, that was published this week reveals that foreign ownership of office space in London’s Square Mile has rose dramatically since the 1980s. The new report which examines shifts in ownership and usage between 1973 and 2011 also shows that, despite the fall in capital values in the aftermath of the global financial crisis, London remains an attractive location for commercial property investors.
The research conducted by Cambridge University’s Department of Land Economy shows that in 1980 92% of City of London offices were in UK ownership. This figure falls steadily up until the deregulation of the financial markets in the mid-1980s then gathers pace with UK ownership down to 79% by the end of the decade. In 2000 this had fallen yet again to 65% with today’s figure dropping below 50% for the first time. This means foreign investors now own 44 million square feet of office space in the city.
Landmark city buildings now in overseas ownership include the Lloyds Building which is now owned by Commmerzbank, Bishop’s Square by JP Morgan and the Gherkin which belongs to German fund IVG Immobilien. In fact German investors lead the field among foreign owners with 16% of city offices followed by the US with 10%. Middle Eastern ownership has also risen but still accounts for only 6% while Japanese ownership has fallen slightly. All in all since 2003 foreign investors have spent more than £26 billion on commercial property the Square Mile.
This figure represents by far the biggest worldwide investment, making London the premier destination for office investment ahead of New York, Paris and Frankfurt. The report warns that this concentration could make London vulnerable to the type of capital flight caused in the US by the volatility of the financial markets but so far there is no evidence of this. On the contrary overseas investors have increased their ownership of city offices since the 2008 crisis accounting for 66% of acquisitions in this period.
The report also reveals that office usage has progressively shifted along with ownership as the Square Mile has become more finance focussed. Today 41% of floor space is occupied by firms in the finance, insurance and real estate sectors and 57% by financial and business service companies. There has also been a rise in individual ownership of commercial property with 6% now in the hands of private investors.
Professor Colin Lizieri who worked on the report says London is seen as a safe market by foreign investors: “The very scale of the city’s office market attracts foreign investors. They feel they will be able to realise their capital in the future, confident that there will be purchasers for their buildings,” he said this week.
Development Securities Chief Executive Michael Marx agrees, telling the Telegraph that foreign investors have stimulated the liquidity of the commercial property market in the city. He concludes by saying: “It could be argued that these overseas investors, now in the majority, are critical to future values in the city. The question is will the level of foreign ownership continue to rise dramatically?”