Asian Investors Always Buy The Dip In London. Not This Time

Over much of the past two decades, when London real estate prices have dropped and competition reduced, Asia-based investors have stepped in to take advantage of opportunities in the UK capital. But with values falling sharply in 2023 and 2024, they are notable in their absence.

Asia-headquartered investment in London built steadily after the Global Financial Crisis, reaching nearly £8B in 2013, and peaked again in a wider post-Brexit mini slump to hit just shy of £8.3B in 2017, or 29% of all London deals, according to figures provided to Bisnow by MSCI.

But in 2023, as rates rose and investment volumes collapsed, the total was just £2.6B, or 18%. And in 2024, the figure stands at less than £135M to date — less than 2% of the £6.4B total deal volume.

So with repricing of assets across many sectors bringing more value reality to London’s real estate market, plus ongoing political upheaval and signs of interest rates cooling, why has London failed to attract Asia’s big hitters this time around?

The answer lies in macroeconomics, problems at home, challenges common to Europe as a whole and some specific to the UK market, and uncertainty in the sector Asian investors have typically focused on in the UK — offices.

“There are multiple factors. Firstly, we’re still waiting for interest rates to come down, while the UK fiscal deficit is a worry,” Hong Kong-based BEI Capital Partners founder Collin Lau said.

On 20 June the Bank of England held rates at 5.25%, but commentary surrounding the decision said it was "finely balanced" raising hope that it could start to drop rates in August. 

There is also uncertainty because of the upcoming UK general election, plus the ongoing impact of detachment from the European Union. All these things have implications for how Asian investors view stability, Lau said.

“Hong Kong investors especially are looking for more clarification about the path forwards in the UK, which was once seen as a gateway to Europe,” he added. “Right now the UK office market is not looking favourable, but there are pockets of opportunity. All kinds of accommodation and the living sector are attractive, projects liked mixed hotels and apartments, plus healthcare.”

Although he said the UK is still interesting for Asian investors, he added that there is a growing appeal about diversifying across the whole region, from Asia Pacific to Japan and to the southern parts of Southeast Asia. In 2023, Japan was the second-most-popular country for outbound Asian investment after the U.S., MSCI found, whereas the UK normally occupies second place. 

London is not alone in seeing a cooling of interest from Asian capital.

“There’s no doubt that the market is slow, but last year London was the top overseas destination for Asian-headquartered capital, ahead of Toronto and Sydney,” MSCI Head of EMEA Research Tom Leahy said. “Globally, it’s still a difficult period. And historically, a lot of the focus has been on offices, where sentiment remains quite negative.”

Leahy also said that in the post-Brexit period, for example, several factors encouraged investment, such as the devaluation of sterling and UK retail funds being forced to divest assets, creating temporary value opportunities.

That period also attracted buyers such as Hong Kong-based conglomerates that were not traditional real estate buyers but were prepared to be opportunistic. But this time around the picture is more complicated.

“It would appear that we may be past the low in transactions in the UK and Europe, but it’s still difficult to deploy capital right now,” Leahy said. “Also, there remains a bid-ask spread between buyers and sellers, plus the issues around offices are a more structural story about occupiers and their long-term intentions.”

In addition, the dynamics that favoured London during previous value dips do not exist in 2024, according to Rasheed Hassan, Savills head of global cross-border investment. He pointed to previous periods of market dislocation where Asian capital had targeted London.

“At those times, typically the UK has been moving at a different rhythm to Asia Pacific,” Hassan said. “For example, the Global Financial Crisis hit the West harder than the East and presented an opportunity to invest further afield, often for the first time for Asian groups. Likewise, Brexit was something very specific to the UK, which presented one-off opportunities at a time when many Asian investors were very well capitalised.”

This time around, it is a largely interest-rate-led tightening of the market on a global basis, and with many Asian investors already holding existing portfolios in the UK and Europe or domestic portfolios that have lost value, there is less agility to capitalise on lower London prices, Hassan said.

“It’s worth remembering that APAC covers a very wide region and each market has its own dynamics,” he said. “So we haven’t seen much activity from Korea, although there are signs that may start to change in the second half of the year or in 2025, while there are capital controls in China relating to outbound investment, for example.

“Additionally, there has been a lot of negative sentiment around offices globally, and when you couple this with uncertainty about whether pricing has reached the bottom, it is not surprising that we aren’t seeing a flood of investment.”

However, he said the mood toward offices is changing to the positive and some U.S. private equity capital has been bidding and buying in London again.

“Although it’s very early days, it doesn’t take much to start building momentum,” Hassan added.

He pointed to a lack of transactions with APAC investors as also impacted by a lack of suitable opportunities being offered by owners. And when prime assets have been marketed, there has been good engagement and in some cases trades to APAC groups, particularly the largest assets.

“For vendors, the situation is very different to previous dips, with far more equity typically invested in properties, which incentivises owners to refinance or add more capital if they get close to covenant breaches, especially if the market is perceived as being at or around the bottom, so that they can sell during more favourable conditions in the future,” Hassan said.

CBRE Managing Director and Head of European Capital Markets Chris Brett said the lack of headline deals this time around also reflects more maturity in Asia-based capital deployment.

“It’s a more nuanced picture,” Brett said. “In the past, Asian investment was often new capital and came in to acquire very specific projects, and that tended to grab the headlines. But many of these investors now have very established funds based in the UK and Europe.” 

Those major names include Singapore’s sovereign wealth fund, GIC/Tomasek, ARA China, Singapore’s Mapletree Capital, Frasers Property and CapitaLand, Japan’s Mitsui Fudosan, and China Investment Corporation, many of which have London offices.

“Right now it’s more of an evolution with their businesses in the UK. They have proven that they are here to stay,” Brett said. “More generally, market investment sentiment is very sector-led. Anything in the living sector is performing well, and retail across Europe is an intriguing space, and we have seen some major deals in that sector this year.”

That point is emphasised by Singaporean private equity and real estate investment trusts, which have made several hotel acquisitions in 2024. This month, private equity firm Prima Asset Management acquired the 68-room Victoria Garden Hotel at 100-102 Westbourne Terrace, Paddington, for an undisclosed sum in its first venture into the London market.

Meanwhile, fellow Singapore-based Copthorne Hotel Holdings, a division of City Developments, acquired the Hilton Paris Opéra for €240M. In February, another Singaporean firm, Sun Venture, bought the 280-room Hyatt Place London City East.

However, for every new entrant or acquisition, there seems to be another Asia-headquartered real estate fund divesting London assets, and the office market, which has typically been a driver of London’s investment dynamics, remains the most challenged sector.

“The office market in 2024 looks like it will be much the same as 2023,” Brett said. “The best buildings in the top cities are attracting premium rates, and there is still capital in the market. But volumes are not rebounding.”

UPDATE, JUN. 20, 10:01 A.M. ET: This story was updated with the Bank of England's June interest rates decision.