The Square Mile by night

Foreign investors now own the majority of City of London offices, according to a new study from the Department of Land Economy.

The very scale of the City's office market attracts foreign investors, even in these difficult economic conditions.

Professor Colin Lizieri

City of London office properties are more attractive to foreign investors than ever before, according to Who Owns the City, a major study from the University of Cambridge, which is published today by property investor and developer Development Securities PLC.

Foreign investors now own 52% of the Square Mile’s office stock, growing from 8% in 1980 and continuing the upward trend seen since the ‘Big Bang’, when financial markets were dramatically deregulated in 1986. The latest report reveals that the City of London office market has displayed remarkable resilience to the 2008 global economic downturn.

Surprisingly, the destruction of asset values in the aftermath of the crisis has not induced capital flight, as was experienced in the US. On the contrary, overseas investors have increased their share of City ownership, accounting for 66% of acquisitions by value since 2008. London, as a whole, now attracts more inward office investment than any other city in the world, including New York.

"The very scale of the City's office market attracts foreign investors, even in these difficult economic conditions” says Professor Colin Lizieri, Grosvenor Professor of Real Estate Finance at the Department of Land Economy, who led the study. “Investors from overseas feel that they will be able to realise their capital in the future, confident that there will be purchasers for their buildings.”

Overseas buyers remain focused on prime City assets which are perceived to be of higher quality, with the aim of enabling increased potential returns and greater liquidity – the average purchase price expended by foreign buyers between 2008 and 2011 was £91 million compared with £27 million on the part of UK investors.

"Future global investment in the City depends on confidence in London as an international financial centre. The City has proved exceptionally strong in the face of the global financial crisis - despite sharp falls in the value of offices” says Lizieri.

The City’s ‘functional specialisation’ with regards to its occupiers remains strong, 41% of office space is owned by firms in the finance, insurance and real estate sectors and 57% by financial and business services firms. This concentration of industry means the future success of the Square Mile office investment market is intrinsically linked with that of its occupiers.

“This globalisation of ownership brings its own risks, tying the fortune of the City still further to the volatility of international financial markets” says Lizieri. “It remains vulnerable to capital flight if that confidence ebbs, and London loses competitive position to the rapidly strengthening Asian cities of finance."

The report also reveals the changing profile of City office owners including those with longer-term investment horizons. For example, there is a growing trend towards private ownership by high net-worth investors who now own at least 6% of City office floor-space, and possibly more given their shyness of the public eye.

Traditional owners – livery companies, institutions, established property companies – have experienced a sharp decline in City office ownership from 29% in 2005 to 17% in 2011. Meanwhile, specialist real estate investors have increased their share of City space, now accounting for 45% as against 35% in 2005.

Other key findings of Who Owns the City show that Germany remains the largest overseas investor with a 16% share of ownership, followed by the US at 10%. Middle Eastern ownership has expanded to 6% whilst Japanese holdings have dropped to 2% compared to a peak of 11% in the early 1990s.

Michael Marx, Chief Executive of Development Securities PLC, said: “London’s attractiveness to foreign investors has clearly been undeterred by the widespread economic turmoil. The question is: will the level of foreign ownership continue to rise dramatically?”

“It is clear that the viability of City offices continues to depend on the strength of London’s financial services sector, creating a highly volatile, one-horse town.”

The report ‘Who Owns the City 2011’ can be downloaded from the Department of Land Economy’s website here: www.landecon.cam.ac.uk. Colin Lizieri’s book ‘Towers of Capital’ is published by Wiley-Blackwell.


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