Foreign investors retreat from UK real estate

Overseas investors have pulled back from the UK commercial real-estate market, a signal weak oil prices and volatile stockmarkets continue to bite, according to a survey of property agents. 

Demand for UK commercial real estate from foreign investors slowed in the last three months of 2015 for a second straight quarter, according to the Royal Institute of Chartered Surveyors. The retreat comes as overall buyer interest in UK property markets grew at its slowest pace in more than two years. 

Values of UK commercial property -- such as offices, shops and warehouses -- are broadly expected to keep rising due to robust demand for a limited number of assets, RICS said. 

In London, commercial real estate appeared "overpriced to some extent" in the fourth quarter to 81 per cent of agents surveyed, up from 77 per cent in the third quarter, RICS said. 

Strong demand for commercial real estate has pushed up prices in cities around the world. After the 2008 financial crisis, investors increasingly saw property as a haven from financial shocks, while returns looked better compared to other assets like bonds. 

London, which has attracted major investors from Asia and the Mideast, has been a particular focus. Last year, $US40.5 billion of commercial real-estate transactions were sealed in London, over half of the UK total of $US72.7 billion, according to data-provider Real Capital Analytics. 

Even with fewer foreign buyers, strong demand among other investors, limited supply, and a growing economy will continue to underpin commercial property values. 

"For the time being, the real estate sector seems largely insulated from the turmoil affecting financial markets," said Simon Rubinsohn, chief economist at RICS, in a statement. 

The low interest rate environment "provides further comfort for those parts of the property market where values are looking a little stretched and arguably more vulnerable to a material shift in monetary policy," said Mr Rubinsohn. Markets expect the Bank of England to keep its base rate at 0.5 per cent until at least 2017.