London has long been a target for Hong Kong capital, with the city having many attractive attributes such as its gateway reputation, transparent legal system and trophy assets.
After two years of pandemic related uncertainty, we expect to see investors from Hong Kong physically back in the capital towards the end of this year. However, that hasn’t meant they’ve been absent from the market: our analysis shows that there was circa £900 million invested by Hong Kong sources in 2021, despite various lockdowns and travel restrictions. The implementation of new technologies has allowed investors to view and inspect properties using live videos and 3D models amongst other solutions. So, just what is driving the appetite for London offices?
Why is investing into London attractive?
London is one of the key global gateways for investors, allowing them to enter Europe while providing a good option for risk diversification. The longstanding relationship between the UK and Hong Kong means that our legal and land tenure system are familiar to many investors, making transactions less complicated. Despite Hong Kong being a global city, its domestic market is dominated by local and Chinese funds. This means that investors are forced to look more globally. The amount of activity seen from America, the Middle East and Singapore, amongst others, boosts London’s reputation as “the place to be”. This is combined with the fact that London real estate provides comparatively more stable and higher yields, in the City core, yields for prime stock are generally above 4 per cent, in Hong Kong the yield would be around 2.5 per cent for similar assets.
How does London office investment differ to office investment in Hong Kong?
London has a significantly longer general lease term when it comes to office property - generally hovering at around 10 years plus, compared to two to three years in Hong Kong. For investors, this makes the market more attractive, providing opportunities for the asset to generate longer secure income for investors. In the same way there are trophy assets, there’s also an element of ‘trophy clients’ with global firms such as Google, Facebook, Amazon and HSBC all having London headquarters. Also London’s landlords are also more willing to refurbish their properties, this programme of upgrades means that a better quality of tenant is attracted and there’s more opportunities for rental increase. In Hong Kong, landlords are more cost-oriented and therefore have less willingness to upgrade.
What are the emerging trends for investors from Hong Kong?
In the past we have seen Hong Kong capital prefer trophy assets in core London locations which provide a stable income stream. The Walkie Talkie is owned by Lee Kam Kei and CC Land bought The Cheese Grater in 2017. However, recently we have seen investors increasingly keen to diversify into different sectors such as residential development, student accommodation and hotels. Hutchinson Property Group, an affiliate of CK Asset, is developing Convoys Wharf, a 3,500 new home project in Deptford. CC Land are redeveloping the former Whiteleys department store in Bayswater to become the first Six Senses hotel in the UK. We are even seeing some investors eyeing up high street retail properties based on a perceived rebound in the sector, searching for some hidden gems.
Sean Tsoi works in the London Capital Markets team focusing on assisting Asian clients, particularly those from Hong Kong and mainland China. Prior to joining the team in London, Sean built up more than 10 years of experience in the Hong Kong market where he handled numerous investment transactions and built lasting relationships with institutions and investors.