GLOBAL real estate adviser Knight Frank on Friday (Feb 18) said the central London office market is likely to attract £4.1 billion (S$7.5 billion) of capital from the Asia-Pacific region in 2022, with a substantial volume to come from Singapore.

This is around double the volume of capital from the region in 2021, according to the agency's annual London Report.

Christine Li, Asia-Pacific head of research of Knight Frank, said Singapore, Korea and Greater China had largely driven the £2.1 billion spent in London in 2021, which is a "significant amount of activity" considering current travel restrictions.

Noting that the forecast £4.1 billion represents 39 per cent of all inbound investments into London, she added: "Singapore will be the dominant force from Asia-Pacific, more than doubling its investment into the UK capital, from an estimated £0.4 billion last year to £1 billion in 2022."

Meanwhile, Greater China is projected to increase its allocation by 50 per cent to £1.5 billion from £1 billion in 2021, she observed.

Over the next 5 years, overseas capital targeting the UK capital will surge to £60 billion, which is the highest 5-year total for over 20 years, the report said.

A NEWSLETTER FOR YOU

Tuesday, 12 pm

Property Insights

Get an exclusive analysis of real estate and property news in Singapore and beyond.

Sign Up

While investors from the US and Greater China will be the most active during this period with £15 billion and £6 billion respectively expected to pour in from these countries, Singapore investors are likely to come in third and fuel about £5.5 billion worth of investments during this 5-year period, the report added.

Emily Relf, Knight Frank's head of global capital and strategies, said prime office assets remain top of the list for central London's Asian capital.

She also observed that Asia-Pacific investors who are already firmly established in the London office market are "starting to move further up the risk curve".

"Whether it be taking on some vacancy or refurbishing lower grade assets, core plus and value-add strategies will be evident in 2022. Capital partnering with local managers will be a structure many Apac (Asia-Pacific) investors will increasingly employ to ensure success in this approach," she added.

Meanwhile, the agency's London research partner Shabab Qadar sees London's pricing and "above inflation" income opportunities as reasons for global investment volumes to continue "increasing steadily" over the next 5 years.

"With peak uncertainty around Covid-19 and Brexit now behind us, the easing of cross-border travel and improving economic outlook has coincided with a positive structural shift in the real estate allocations of long-term global investors.

"Given that a substantial wall of capital is competing in a market with low levels of available stock, we expect investors to increasingly seek repurposing opportunities within the secondary market, targeting the double-digit green rental and sales premium available," he added.

Overall, 2022 is projected to see £10.5 billion of global capital investment into London offices, up 17 per cent from 2021, with £5.3 billion deals already under-offer.

This was attributed in the report to pent-up demand being released as cross-border travel and social restrictions ease, and a broader investor base looking to deploy capital into Grade A offices with strong lease terms and sustainability credentials.

It also stated that London's higher number of BREEAM-rated stock, estimated to be around 1,078 offices - more than other European gateway cities - is a key consideration for investors looking to future proof their portfolios and meet sustainability targets.

BREEAM refers to the Building Research Establishment Environmental Assessment Method, an established method of assessing, rating and certifying the sustainability of buildings.

Knight Frank analysts found that prime central London offices with a BREEAM Excellent or Very Good rating have a 10.5 per cent and 10.1 per cent premium on sales price respectively, compared to equivalent unrated buildings.

READ MORE:

• Knight Frank launches Vietnam arm with focus on commercial real estate

• Surge in Singapore retail properties put up for auction in 2021: Knight Frank

• Singapore office rents improve in Q4 2021, will continue to grow: Knight Frank