Foreign invasion

A recent report entitled ‘UK for Sale’ claims property investment has grown by one third since 2000 – with the value of commercial buildings up by almost a quarter, UK commercial property continues to be popular with foreign investors and between 2000 and 2006, the total value of commercial buildings increased by 23.6 percent to £741bn.

A third of the UK’s commercial building stock is owned by foreign investors, a major new report has shown. Entitled “UK for sale – Global investment in UK commercial property”, the report, commissioned by leading commercial insurer, Royal & SunAlliance (R&SA), confirms that the UK has retained its reputation as one of the most secure commercial property markets in the world.

Overseas based investors directly own nearly a quarter (22 percent) of all commercial buildings in the UK and an additional 10 percent through investment funds. In contrast, overseas companies with a physical presence in the UK own just one percent of the commercial buildings. The report also found that investment in UK commercial property has grown by one-third over the past seven years, with the market seen as offering a steady return on investment.

Between 2000 and 2006, the total value of commercial buildings increased by 23.6 percent to £741bn, while around £21.7bn of commercial stock is estimated to have been under construction between 2006 and 2007, reflecting continued confidence in the UK economy despite talk of a crisis. New orders for commercial construction amounted to £16.6bn in 2006 alone.

Foreign investment in commercial property has not been uniform across the country, however. London and the South East are the most popular areas for foreign money, followed by large regional centres such as Birmingham and Manchester. In contrast to the rest of the UK, the commercial property sectors in Northern Ireland and the North West of England have seen less overseas investment since 2000.

Overseas investors are focusing primarily on property designed to support the UK’s expanding service sector and are less keen to invest in manufacturing premises, the report also found.

Overall, the amount of commercial floor space available has risen dramatically in the UK since 2000, with the East Midlands witnessing the largest growth. Greater London has actually seen a decline in available commercial floor space from a peak in 2004, reflecting growing competition from residential development on Brownfield sites across the capital. In England and Wales, commercial floor space increased from 570,047,000sq m in 2000 to 595,561,000sq m in 2006.
The report also found that the total amount of floor space owned by overseas investors has also risen to more than 22 percent – driven by demand for office buildings with sitting tenants on medium term leases.

Nigel Salisbury, Director of Property Investors, at R&SA comments: “The report provides a fascinating insight into the UK’s commercial property sector, which is an important indicator of confidence in the country’s economy, and clearly remains popular with foreign investors.

“The robust nature of London’s market in particular has made it especially popular with investors, who have always seen the capital as a safe destination for their money, capable of generating steady returns.

“Over time, we expect to see increasing competition from emerging markets such as Eastern Europe and in due course, further a field in China and India, as people become increasingly confident about investing in these rapidly expanding economies. However, in the long run we believe the outlook for the UK remains healthy, so long as the economy also continues to stay in reasonable shape.”

Royal & SunAlliance commissioned the independent report to highlight its property investment underwriting expertise, which is provided to brokers and investors through offices in London, Croydon, Bristol, Birmingham, and Manchester.