Chinese Investors Pull-Out of London's Commercial Property Market

After a prolonged period of sustained and large scale Chinese investment in London's commercial real estate market, some of the biggest players are now ditching deals at the eleventh hour of negotiations.

Concerns have been mounting that Chinese capital will seek refuge in dollar markets, particularly in view of sterling's recent volatility, reducing its appeal as a safe haven currency for real estate investment.

According to the UK Property Weekly, a publication targeted at the Chinese-speaking community in Britain, a Shanghai-based private property conglomerate Shenglong Group has withdrawn from a £195m deal to acquire Thames Court office tower in the City of London. They also reported the Chinese mainland's Anbang Insurance Group, which bought New York's Waldorf Astoria hotel for US$2bn last year, has now abandoned its plan to buy one of the tallest buildings in London's financial district, the 46-storey Heron Tower.

Furthermore, the South China Morning Post Sunday revealed that China Minsheng Investment, China's largest private investment fund, withdrew from a £1.7bn integrated development in East London, seven months after a letter of intent was signed with the project's owner in Shanghai.

In recent years, China's government has made concerted efforts and taken strong measures to prevent capital flowing out of the country. However in the face of the government-induced devaluation of the yuan and the volatile stock market conditions in August, Chinese investors have relentlessly bought swathes of big ticket residential and commercial real estate in the prime markets of the US, UK and Europe.

However, there is a definite loss of appetite for UK commercial real estate assets among Chinese investors, whereas across the Atlantic, the story is quite different. Chinese buyers continue to love US real estate and some analysts are indicating that the appeal of dollar investments is causing them to abandon ship in European property markets.

According to research by global property consultancy CBRE, total Chinese investment in American commercial real estate stood at US$3.7bn in the first half of the year, more than 1.5 times the annual cash flows seen in 2015. Experts predict that Chinese investors will continue to invest in London's residential markets, despite declining interest in the commercial sector.

Fred Richardson, a director at Hanover Private Office, which helps Chinese buyers acquire properties in and near London said that he doesn't believe that there is a trend after the three recent incidents in the commercial real estate market. Many industry insiders are of the same opinion that London's residential market activity is unlikely to be hugely affected by the loss of Chinese appetite for commercial property.

There is still much room for growth in the UK's property markets although investment activity is now more concentrated in the regions rather than the capital. There are also many more vehicles for property investment that allow armchair investors access to the profits of huge funds with residential property holdings, through crowdfunding platforms with low entry levels.

Despite the small decline of Chinese money in London's commercial real estate, it is largely due to the considerable force of their investment in recent years, that there is still plenty of buoyancy. In many respects, the path is now much clearer for other investors to profit from what is an undeniably – and at times illogically – an exceptionally rich real estate investment market.