London property scorned no more by Europe's buyers on Brexit

Pedestrians walk past covered-up mannequins outside a disused commercial retail property on Regent Street in central London on March 6, 2017.
Pedestrians walk past covered-up mannequins outside a disused commercial retail property on Regent Street in central London on March 6, 2017.PHOTO: AFP

LONDON (BLOOMBERG) - European investors who shunned London's commercial property in the run-up to the Brexit referendum are flocking back as the weak pound cuts prices and electoral uncertainty on the continent makes the United Kingdom seem a good place for buyers to spread their bets.

Investors from Europe plowed 1.7 billion pounds (S$3.06 billion) into the capital's offices, shops and warehouses this year through April 18, accounting for 31 per cent of the market, according to Savills. That's up from 824 million pounds and 14 per cent in the same period of 2016.

While the UK has its own political challenges, the hazards are widely seen as predictable and priced in compared with the rest of Europe. Opinion polls suggest Prime Minister Theresa May's Conservatives will significantly boost their parliamentary majority at the election called for June, helping the premier negotiate a better settlement as Britain leaves the European Union. And many investors have already resigned themselves to the UK quitting not just the bloc but also its single market, and have made contingency plans to soften the blow.

"If anything, the snap election call in the UK decreases uncertainty regarding property values in London," said David Hutchings, the head of European strategy for property broker Cushman & Wakefield. "If, as expected, Ms May comes out stronger and in a better position to negotiate with the EU, our Brexit will be softer."

Centrist Emmanuel Macron's victory in the first round of France's presidential elections sparked a global market rally on Monday as a poll suggested he leads rival Marine Le Pen by more than 20 points heading into the May 7 runoff. Still, the fact that the nationalist Le Pen got through to the second round will encourage foreign anti-EU parties such as Alternative fuer Deutschland in Germany and Italy's Five Star Movement.

"Elections in France and Germany, and possibly in Italy next year, mean that there'll be a certain degree of uncertainty vis a vis investing in Europe for a prolonged amount of time," said London-based Hutchings. "And due to changes that may come via Trump, the US is no longer a natural alternative to London for European buyers. Mr Trump and Brexit taught us all not to be complacent."

As confidence increases, acquisitions are stacking up. Germany's Deka Immobilien paid 485 million pounds for the Cannon Place development in the City of London financial district last week, two months after it bought a stake in Rathbone Square, an office and retail site that acts as the UK headquarters of Facebook. Also this month, a consortium of German funds bought London's Olympia exhibition center.

Investors from outside Europe are also jumping in, with plans emerging in recent days for Kennedy-Wilson Holdings to buy Kennedy Wilson Europe Real Estate Plc and Teddy Sagi to acquire Market Tech Holdings Ltd.

"The commercial-property market in London is 10 times the size of Frankfurt and nobody, not tenants nor investors, want to leave," said Ronald Dickerman, founder of Madison International Reality LLC, an investor in the development that houses the London Stock Exchange. "Brexit just made London an even better place to invest."