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Foreign Investors' Interest in UK Commercial Properties Wanes

Posted by Jereco O. Paloma on Jan 27, 2016 09:17 AM EST
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LONDON - SEPTEMBER 20: 30 St Mary's Axe, nicknamed 'The Gherkin', is pictured on September 20, 2006 in London, England. The famous London landmark standing at 180 metre high, has been listed for sale by its owner Swiss Re, the insurance giant, for an estimated GBP600 million pounds. Swiss Re occupies the first 16 of 34 office floors. The rest are occupied by financial groups such as Allianz, the German insurer, and Cardinal Asset Management. Coutts, the private bank, and Hypo Real Estate, a German mortgage lender, also have offices in the building. (Photo : Daniel Berehulak/Getty Images)

As oil prices continue to plunge, coupled with the deteriorating stock market, foreign investors are starting to pull back as they start to lose interest in the UK's commercial property market.

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According to UK's Royal Institute of Chartered Surveyors, as reported by the The Wall Street Journal, the UK saw a sharp decline in the demand for commercial real estate in the fourth quarter of last year and foreign investors are losing their appetite for the UK's commercial properties.

The report, however, noted that the UK's economic expansion as well as the scarcity of commercial properties would provide a backbone to the values of commercial properties. Overall, the buyer interest in UK commercial properties has slowed down as of late.

According to current data, values of commercial real estate properties in the UK, which includes office, stores and warehouses, will further rise as buyers will be fighting out for the little supply left in the market.

In fact, the report added, at least 81 percent of realtors surveyed believe that London's commercial properties seemed overpriced at some point in the same quarter. This is slightly higher than the 77 percent of agents who said that London's commercial real estate properties were overpriced in 2014.

The report noted that the skyrocketing of real estate prices, especially in the commercial segment, is a normal phenomenon when the demand is high and the supply is scarce. After the whole world was shocked by the fiscal crisis in 2008, many investors realized the potential of real estate assets as a viable alternative investment.

Simon Rubinsohn, RICS chief economist, said the real estate sector seemed unfazed by the crisis that's been affecting the financial sector.

"One potential consequence of the current climate is that the trend in foreign investment could slow which is a pattern the latest RICS survey seems to be picking up. However, with the economy still set to post growth in excess of 2 percent in 2016 the backdrop for the occupier market appears reasonably well underpinned," Rubinsohn was quoted as saying in a report from City A.M.

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