Gulf property investors return to London

Alamy

• Uplift since general election
• Interest in outer suburbs
• Office stock being repurposed

Gulf investors are returning to the UK property market after four years, with experts attributing the change to the new Labour government and falling interest rates.

Rashid Khan-Gandapur, director of real estate finance at the Bank of London and the Middle East, says the bank has seen a “massive uplift in GCC investment flow since the Labour government’s general election win” brought more political stability.

In August, Khan-Gandapur predicted that Gulf investors might put as much as $4 billion annually into UK commercial properties. 

Now he says it is likely to be more than that because of favourable rates and because “problems going on elsewhere in Europe mean the UK is seen as a relatively safe place to invest, which means there’s a chance for above-average investment returns”.

Both Knight Frank and Blackstone said they believe the commercial property market had reached its lowest ebb, which has created investor confidence, Khan-Gandapur says.

“We’ve had three years of falling commercial property prices, particularly in the office sector,” he says.

“The combination of political uncertainty, the Covid disruption and high interest rates led to a fall in prices, and investors were reluctant to put money into property.”

The high interest rates forced a lot of small buy-to-let investors to pull out of the UK because it was not tax-efficient. Khan-Gandapur says this created a strong market for large-scale providers of residential accommodation, such as purpose-built student accommodation and co-living, which can be operated at scale. 

• Gulf investors put $100m into London property fund

• London’s suburban real estate moves Middle East investors

• Why Birmingham is the place to invest in the UK

With rents continuing to rise across the UK, Khan-Gandapur says his bank is seeing a lot of investors focus on buying under-invested office and retail stock and repurposing it into residential. 

“Gulf investors in the past were happy to buy finished commercial office buildings. I think they’re doing more of this repurposing type of work,” he says.

“They’re seeing the chance for long-term gains from proper asset management, whereas, in the past, they would have just bought a sort of tenanted building and just sat on it.”

Edward Price, director of capital markets Middle East at Savills, says there has been a “fairly suppressed appetite from GCC investors” with a lull that dates back to 2022, coinciding with Russia’s invasion of Ukraine and massive political upheaval during which Liz Truss become the shortest-serving PM in UK history. 

The uncertainty continued into the summer of last year when it was unclear what a change in government would mean. 

“It wasn’t until probably the last part of last year that we started to see pricing stabilise in a lot of sectors,” Price says. “That’s when we saw a bit of an uptick in appetite for people looking again at the market.”

On the residential side, Gulf buyers have been showing more interest in property beyond central London, in outer London boroughs in zones three to five, where properties are cheaper and offer better yields. 

Sub-£1 million

Ian Plumley, managing director at the Dubai-based Hardington Residential, says clients looking to buy in London have changed their price point and locations in recent months. 

Since the Labour government came to power, his clients are now looking to buy sub-£1 million properties, in the range of £750,000 to £850,000 ($925,000 to $1 million), down from the previous price range of between £1 million and £2 million.

“Buyers are moving to outer London, looking for slightly cheaper property, but better yields,” Plumley says. 

Property yields in central London are around two percent, whereas in zones three to five they are between four and six percent, he says. 

Stuart Leslie, international sales and marketing director at Barratt London, says its Eastman Village project, a regeneration of a former factory site in Harrow, North London, has expected yields of 6.2 percent, while its Hayes Village development a few miles away has a 6.4 percent yield.