By Rhiannon Bury
London has slipped from its position as the most invested-in property market to be overtaken by New York, as total investment in buildings across the globe fell for the first time in seven years.
Investment in the UK capital dropped to $25bn in the 12 months to June 2016, down from $39bn in the previous year, pushing it to third in the global rankings, behind New York and Los Angeles, according to research by property advisory firm Cushman & Wakefield.
Although the global investment market grew 0.5pc to $1.35tn in the 12 months to June 2016, when transactions to buy land for development were excluded, the market actually shrank by 5.7pc to $919.7bn as investors reacted to greater volatility and political and economic uncertainty.
The reversal in fortunes for the property market could be attributed to a bumper year in the 12 months previously, indicating that the cycle is at a late stage.
“The market has clearly paused for breath after a busy 2015,” David Hutchings, head of EMEA investment strategy at Cushman & Wakefield, said.
“Indeed, with the scale of change underway in the macro environment – from war to disease to Brexit to Trump – many investors are now struggling to decide what comes next and where they should look for value.”
Concerns around Brexit, together with high pricing before the referendum, are to blame for the dip in spending, the report suggested, although London was still the European region’s leading city for investment and Cushman & Wakefield predicted that its decline would be short-lived.
A range of other markets were also down, including Tokyo, Washington and Frankfurt, due to a combination of limited supply and local competition, the report found. Ten of the top 25 cities by foreign investment were in Europe, the Middle East and Africa, nine in North America and six in Asia-Pacific.
Fears around instability in the Chinese market have been overtaken by uncertainty in Europe and the UK, as well as the looming elections in the US, the report said.
But Carlo Barel di Sant’Albano, chief executive of global capital markets at Cushman & Wakefield, said that he remained positive about investors’ interest in allocating capital to real estate.
“Although volatility has declined over the past 12 months overall risks are still evident,” he added. “While global uncertainty will continue to make investors more cautious, this is counterbalanced by the fact that corporate confidence has held up.”
The report found that investors were increasingly looking outside their home markets to buy assets, with cross border investment volumes growing faster in America and Asia than Europe.
Mr Hutchings added: “Despite the volatile environment, more investors are turning to the stable cash flow and inflation-hedging merits of real estate, particularly given that the fundamentals of the market on the occupier side are holding up well.”
A separate report by M&G Real Estate, one of the UK’s largest property investors, said there was anecdotal evidence to suggest that overseas investors are already looking to take advantage of the recent depreciation of sterling by buying property.
It warned that property values could fall by 10pc during negotiations about the UK’s position outside the European Union, before rebounding.
Source: telegraph.co.uk