City of London office assets a key target despite Britain’s stuttering back-to-work drive
Middle East appetite for UK commercial real estate is ramping up with wealthy investors expected to spend $1.5 billion this year, with office buildings — particularly in the City of London — the top target as easing Covid-19 restrictions unleash pent-up demand.
The region’s accelerated investment in Britain’s commercial property landscape is set to be 33 per cent higher in 2022 than last year, according to Knight Frank, with office assets taking centre stage despite Britain’s employees making a slow return to city centres following the pandemic-induced work-from-home trend.
The investment figure could be even higher, according to Alex James, head of private client commercial advisory at Knight Frank, with the consultancy tracking £4.17bn of active central London office requirements from Middle East investors this year — up 6 per cent on 2021 — with premium green office buildings that comply with Britain’s tighter energy regulations a key focus.
“There is going to be a big pick-up in transaction volumes this year off the back of restrictions easing off with a build-up in demand especially over the summer when a lot of clients from the Middle East travel over here,” Mr James told The National.
“There’s already been a huge uptick this year in Middle East interest and inquiries have gone through the roof for UK investment opportunities over the past two months as people fly again — you can definitely feel the momentum.”
Rising interest in UK commercial property was already evident last year, with Iraq’s Al Khashlok Group snapping up Mulberry and Delvaux flagship stores on New Bond Street in central London for £227 million in August.
Meanwhile, the UAE’s Oryx Real Estate Partners made its first acquisition in the London real estate market, spending £100m acquiring 3 Bunhill Row, a freehold office property in the City, while Saudi Arabian sharia-compliant asset manager Sidra Capital acquired Coca-Cola’s UK head office in Uxbridge, on the outskirts of London in December for £43.65m.
This year is expected to be a record for global cross-border real estate investment activity, said Knight Frank, with $6.5bn of capital from GCC countries set to target global outbound real estate investment opportunities.
UK commercial real estate — one of the region’s favoured outbound investment destinations — will lead the charge, with office buildings the most popular real estate asset class, constituting 24 per cent of allocations within the property sector, according to a Knight Frank survey of wealthy investors, whose wish list includes long-term office income from blue-chip tenants.
A lack of A-grade stock as well as Britain’s green transformation, which will see office buildings forced to comply with stricter energy regulations by 2030, will help to fuel this investment, said Mr James, who expects the second, third and fourth quarters of this year to be “busy”.
“We’ve had a very busy start to the year already with clients looking to reposition their portfolios,” said Mr James.
While low supply of premium assets has been a challenge for investors, Mr James said the “right kind of investment opportunities” have begun to enter the market this year, such as “blue-chip office tenants on long-term leases”.
Although interest in Britain’s office sector is surging, the country’s back-to-work campaign has stuttered over the past few months, after the Omicron variant of coronavirus reversed the return to work seen in the run-up to Christmas.
Despite restrictions easing in February as the threat posed by the latest variant retreated, many companies are sticking to hybrid working solutions rather than enforcing a full-time return to the office.
“We are expecting to see a recovery in the office sector and forecast more than half of all major cross-border transactions to be focused on this sector this year,” said Mr James.
“Core long-term office income from globally recognised tenants continues to be the primary focus from investors and we expect there to be an increase in appetite for both London and UK regional cities.”
A desire to have contact with other employees will help to drive people back to work, added Mr James, as people become increasingly frustrated with Zoom meetings and working alone.
However, he concedes that the hybrid approach “is here to stay”, partly because offices have already evolved in recent years from nine-to-five workplaces to hubs for staff to “meet, socialise and increase productivity and creativity”.
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