London Sees £2B Hong Kong Exodus As Investors Fight Domestic Woes, Paltry UK Government Spending

Just after the Brexit vote, as the world emerged from lockdowns, Hong Kong investors stepped in to underpin the London real estate market, buying billions of pounds of assets as everyone else hit pause on London investment. 

Now, those investors are heading for the exit. 

More than £2B of London commercial real estate assets have been sold or put up for sale this year by Hong Kong investors, Bisnow data shows. 

Companies from Hong Kong are selling out due to a combination of problems in their domestic market caused by rising interest rates and contagion from the economic slowdown in China. The move is also driven by worries about a long-term lack of infrastructure investment in the UK, which is making its capital city less appealing. 

“It’s both structural and cyclical,” Bei Group CEO Collin Lau said. “Structural in the sense that people are concerned about the long-term investment by the UK government in underlying infrastructure like water, transport and power. 

“Cyclical in the sense that higher interest rates are causing a lot of problems. Hong Kong real estate has been in a correction for the last three or four years, and we’ve come to the point where banks are starting to pull back on loans.”

Hong Kong investors are net sellers in London to the tune of £1.1B so far this year, according to data from MSCI. 

Major deals include the £300M sale by Langham Estate, owned by Hong Kong investor Samuel Tak Lee, to hedge fund Elliott Management; the sale by Chinese Estates of 14 George Street, also to Elliott; the sale of 291 Oxford Street by Lai Wing-to for £71M to J.P. Morgan; the £35M sale of 147 Wardour Street to HECapital by the same investor; and the £47M sale of Albany House by China Motor Bus Company to Integrity International.

Assets on the market include Vodafone’s £300M Paddington headquarters, being sold by CC Land. Chinese Estates is selling 11-12 St James’s Square for £200M and could be selling out of its £800M redevelopment of 120 Fleet Street. 

Lai Wing-to is also selling Standbrook House on Old Bond Street for more than £150M.

Joint Treasure, a fund backed by investors like New World Development’s Cheng family, Wharf Real Estate’s Woo family and Far East Consortium International Chairman David Chiu, has put 14 George Street on the market for £135M. 

Not all of those investors are in distress. But there is a sense that a shaky domestic economy is seeing Hong Kong investors repatriate capital from London. 

“As liquidity comes down, people are selling noncore assets,” Lau said. 

Hong Kong investors have been hit by the same high interest rates that beset real estate around the globe. 

But the economy there has also been affected by its close links with China, where a slowdown last week prompted the government to lower some interest rates, increase banks’ lending capacities and curb measures limiting homebuying to provide an economic stimulus. 

Corporate bankruptcies were at their highest level since 2010 in August, Bloomberg reported. Of the home sales priced at more than $10M (£7.5M) in the first half of the year, 75% involved financially stressed sellers, according to CBRE.

Last week, Adrien Cheng stepped down as the CEO of New World Development, the company his family had led for three generations. That followed the company’s first annual loss in two decades. 

Lau said Hong Kong investors are also selling out because a once-lucrative strategy, buying a London asset and selling it to a mainland Chinese counterpart, is no longer possible. Chinese investors have been barred from investing in overseas real estate without government approval for several years. 

There is also the fact that investors from Hong Kong have invested primarily in offices. They are now selling out of the sector to invest in other real estate asset classes like industrial and rented residential. 

But the sell-off from London is not solely down to the problems facing Hong Kong investors at home. It also says something about the attractiveness of the UK as an investment destination. 

It may seem a step removed from commercial real estate investment, but the refinancing crisis at Thames Water, the inability to build HS2 or Crossrail 2, and questions about whether there will be enough power to build more residential developments in areas like west London are factors weighing on minds of Asian investors when deciding where in the world to put their capital. 

“Asian investors are used to governments investing in transport, power, water and there being good-quality infrastructure,” Lau said. 

In a report this week, EY said UK infrastructure projects with a total value of £1.6T face a funding shortfall of £700B by 2040 without further government investment. 

Chancellor Rachel Reeves is considering changing the way fiscal deficits are calculated alongside her budget at the end of October to free up capital for government infrastructure spending.

When it comes to attracting global real estate investors, the change can’t come soon enough. 

“There are genuine concerns about infrastructure in the UK,” Lau said. “You have had a wave of privatisations since the 1980s, and we’ve got to the point where someone needs to spend serious money. It may not seem important in the short term, but after two decades of lack of investment, the problems start to come to the surface.”