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EXCLUSIVE: International Investor Survey Delivers Mixed Results for London – AFIRE 2019

The Association of Foreign Investors in Real Estate (AFIRE) and LaSalle Investment Management has spoken exclusively with Commercial People to reveal the reasons why London is receiving mixed messages from global investors.

The 2019 AFIRE International Investor Survey highlights the questioning of the viability of the UK’s capital as a preferred investment destination for foreign investors, with London ranking as the number one place where investors wish to ‘decrease exposure’.

The survey polled just under half of its 200-strong institutional investors to deliver the results; 3 points were given to the city ranked first, 2 points to the city ranked second, and 1 point to the city ranked third in each respondent’s view.

Global Cities Ranking Summary – AFIRE 2019

As shown in the image above, London not only topped the ‘Decrease Exposure’ list but also featured fairly low on the ‘Increase Exposure’ list.

However, despite the negative outlook on the capital, investors ranked London as the number 1 city for capital appreciation, far outweighing the nearest European city Berlin which only amassed 7% of the vote.

To help us learn more about the survey and its outcomes, AFIRE CEO Gunnar Branson & LaSalle Investment Management Global Strategist Jacques Gordon both took time out of their busy schedules to answer a few of our questions.

Commercial People: In the report, London ranked #1 in the ‘Decrease Exposure’ list with 53 points, far ahead of the nearest European city, why do you believe foreign investors are wishing to decrease exposure in London?

  • Gunnar Branson: When discussing London, global institutional investors immediately point to the uncertainty surrounding Brexit. It’s difficult at this point to see precisely how things will work out over the next 12 months. However, according to our survey, many investors believe that London has the best potential for capital appreciation.

  • Jacques Gordon: London has been a perennial top-ranked preferred investment destination in the AFIRE survey for nearly two decades. Its rise to the top of the “Decrease Exposure” list contrasts with last year’s AFIRE survey where London was ranked first as a global destination. It is not Brexit, per se, that is likely behind the concern. Instead, it is the continued uncertainty about the timing and terms of Brexit, which gives investors pause.

CP: Comparatively, London is falling far behind Paris in the ‘Increase Exposure’ list – what do you believe are the reasons for London’s sluggish performance?

  • GB: As London is very much a global city and its economy and property markets are closely intertwined with the global economy, any investment will be strongly impacted by Brexit. Investors are proceeding carefully with new investments in London, given the macro-economic impact of leaving the EU, and the continued uncertainty of the outcome.

CP: What were the main reasons why investors wished to increase or decrease their commercial real estate exposure?

  • JG: Each respondent to the survey has their own reasons. Some are under-allocated to real estate and are trying to bring up their invested positions, relative to stocks and bonds. Others are doing more selling than buying because they manage investment funds that are coming to the end of their planned investment lives. Nearly all respondents have a large permanent allocation to real estate. The deployment of this allocation varies by country, sector and risk-return style across all the respondents. The AFIRE survey pool represents a highly sophisticated group of experienced cross-border investors. They do not all think exactly alike—which is what keeps the international real estate markets functioning with both buyers and sellers in plentiful supply.

CP: What does a Brexit look like to a foreign investor, is it still an attractive proposition, or will Brexit (and especially a ‘no deal Brexit) negatively or positively impact its preferred status amongst American investors aiming to enter the European market?

  • JG: Non-UK investors are cautious about the stability of the GBP (pound sterling) and liquidity in the financial system — The Bank of England has indicated that liquidity buffers must be increased at British Banks. When both of these issues are settled, investment flows to the UK and to London will likely pick up again.

CP: What does a Brexit look like to a foreign investor, is it still an attractive proposition, or will Brexit (and especially a ‘no deal Brexit) negatively or positively impact its preferred status amongst American investors aiming to enter the European market?

  • JG: Non-UK investors are cautious about the stability of the GBP (pound sterling) and liquidity in the financial system — The Bank of England has indicated that liquidity buffers must be increased at British Banks. When both of these issues are settled, investment flows to the UK and to London will likely pick up again.

CP: What were the key factors that investors stated was driving overseas investment, and what compels them to consider investing in a foreign market?

  • GB: Institutional investors invest outside their home country for a range of reasons, including diversification and access to growth outside their own country.
  • JG: As this survey shows, not all international real estate markets are of equal interest. Among other considerations when cross-border capital looks beyond their domestic real estate market are: transparency of information, tax treaties, enforcement of property rights–especially equal treatment of foreign and domestic capital– and the size of the market.

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