London's office sector at a discount thanks to Brexit woes, weakening sterling

By Lam Ka-sing kasing.lam@scmp.com / https://www.scmp.com/property/international/article/3015910/londons-office-sector-discount-thanks-brexit-woes-weakening?utm_medium=partner&utm_campaign=contentexchange&utm_source=EdgeProp | July 2, 2019 11:51 AM SGT
Hong Kong investors looking to leverage opportunities in London during a period of currency weakness might want to take a closer look at the office market, where solid occupier rates indicate solid returns even as political uncertainty lingers, according to experts.
International investors appear to be in a wait-and-see mode, having taken to the sidelines, as they gauge the political outlook three years after the Brexit referendum, according to consultancy Knight Frank.
"Future transaction levels of London's property will be higher as buyers sense good value," said Paddy Dring, global head of prime sales at Knight Frank. "The continuing weakness of the pound means there has been a good balance of international and domestic demand, with many [already] pricing in the political risk surrounding Brexit and taking a long-term view."
The pound has dropped 6.2 per cent against the US dollar since June 23, 2016, when the Brexit vote took place.
Investments by Hong Kong and Chinese buyers into London's office property market fell by 64.3 per cent in 2018 from a year earlier, according to data from Real Capital Analytics, which tracked transactions worth more than £10 million.
"Combined acquisition volumes from China and Hong Kong fell in comparison with last year, following the government crackdown on overseas purchases of non-strategic real estate," said Petra Blazkova, senior director at Real Capital Analytics.
Skyscrapers and office buildings are pictured in the City of London as pedestrians use Waterloo Bridge to cross over the River Thames on August 1, 2018. Photo: AFP alt=Skyscrapers and office buildings are pictured in the City of London as pedestrians use Waterloo Bridge to cross over the River Thames on August 1, 2018. Photo: AFP
"Moreover, the outbound investment activity has been affected both domestically, by monetary tightening, and externally, by US-China trade frictions."
London's property market continues to struggle, with home prices in April slipping 1.2 per cent on year, according to official data.
"Investors are nervous about Brexit uncertainty and its impact on economic performance and this is why investment has slowed," said Walter Boettcher, director of research and forecasting at Colliers.
But Boettcher said London office prices will remain...