London Commercial Property Market Fuelled by Overseas Investment

The commercial property market in London is still flourishing, despite concerns over Brexit and the possible new taxes which could affect international buyers.  With Gerald Eve’s research and London Offices teams reporting strong demand for prime city centre assets, foreign investment in the capital in 2017 surpassed that seen the year before.

Demand for London commercial real estate remains high, with funds from Asia and the Middle East purchasing the majority of City and West End buildings. Private investors from Europe and the UK are also queuing up for office and retail properties in these areas. The London market is still dominated by overseas investment, and investors don’t appear to be faltering in the wake of Brexit and other challenges. In fact, the weaker pound has been an attractive selling point for buyers, along with the UK’s legal structure and so-called “safe haven” status.

Will foreign demand for commercial property remain high, or will this be the boom ahead of our exit from the European Union? Here are some factors which might influence buying decisions of international investors.

Capital Gains Tax

Last year in the Budget announcement, it was revealed that overseas investors could be forced to pay capital gains tax on UK commercial properties and portfolios.  From April 2019, the tax relief that was currently in place will be removed, meaning foreign buyers investing in British developments will have to pay capital gains tax on property assets.

The move was seen as unwelcome by many property specialists who argued that we should be offering incentives to foreign investors while the market is volatile, rather than removing tax relief. However, the major change is set to raise £500m in taxes by 2024, with that figure predicted to rise. Additionally, this major change aligns the UK with the majority of other economies, so investors could still be faced with capital gains tax if they choose to invest elsewhere.

Brexit

It seems that many of the pre-Brexit predictions about the British economy on leaving the EU were over-exaggerated, or at least haven’t come to fruition yet. The UK has long been an ideal destination for foreign investment in property, but there were fears that investment could diminish following Brexit.

Even though Brexit is well underway, everybody is still in the dark about laws and agreements which could affect business, the economy and the property market. The one thing we do know about Brexit is that it brings uncertainty – which like many political events, can have a negative effect on the property market. The decision to leave the EU has so far not had a knock-on effect from international investors – however there is still time for change once the final trade deals are announced and more details emerge about a soft/hard Brexit strategy.

We are following trends on investor appetite. If you’re interested in commercial property in London, our specialist sectors include offices, industrial, retail and leisure.