American investors are immersing themselves in the UK commercial real estate market

Investment activity from US-based buyers in UK commercial real estate saw a significant surge in the first quarter of the year, with London achieving its highest share compared to the rest of the UK in almost a decade.

According to analysis by BNP Paribas Real Estate, total UK inward investment from US-based buyers jumped by 64% year on year, from £1.9 billion in the first quarter of 2023 to £3 billion in the first quarter of 2024. This marked a notable 117% increase from the £1.4 billion recorded in the final quarter of the previous year to the £3 billion in the first quarter of this year, representing the largest quarterly increase since the COVID pandemic. The 5 and 10-year quarterly averages stand at £2.8 billion and £2.6 billion, respectively.

In 2023, total UK inward investment from US-based buyers amounted to £7.6 billion, the lowest annual figure since 2018 at £6 billion. BNP PRE suggests that early activity indicates the UK is on track to surpass this in 2024.

Charlie Tattersall, senior associate director of capital markets research at BNP Paribas Real Estate, explained that turbulence in the US commercial real estate market, such as foreclosures and tight financial conditions, combined with geopolitical instability and stronger-than-expected economic growth relative to Europe, has led to increased capital flow towards markets like central London.

Simon Williams, head of national markets at BNP Paribas Real Estate, suggested that London and much of the UK may now present a “value correction narrative,” with the UK correcting faster than other regions, supporting opportunistic and value-add led investment from US capital.

Fergus Keane, head of central London capital markets at BNP Paribas Real Estate, noted the firm return of US capital into the market, citing recent transactions in central London as evidence of renewed investor confidence.

Regarding the impact of the US election, Keane stated that while domestic political tension can influence investor behavior, other factors such as the strength of the dollar against the pound and the current stage of the UK’s economic cycle are more dominant themes.

According to the firm’s latest data on London office space, prime rents in the City have increased from £75 to £77.50 per square foot, and in Mayfair/St James from £150 to £155 per square foot.

Source: CoStar