Foreign firms own half of London’s finance zone

LONDON: Almost half of the property within London’s financial district, the City, is owned by foreign companies, a survey has shown. Some 36 million square feet or 45 per cent of all offices in the financial hub, are owned by foreign firms, compared with 28 per cent in 2001, property firm Development Securities said.

One quarter of property in the City — the world’s fourth most expensive office location — is held by German, American and Japanese investors, according to the ‘Who Owns The City? 2006’ study, covering 2001 to 2005. “This period is marked by a growing international presence, increasingly innovative investment structures and a greater reliance on financial borrowing,” it said.

The report, written by Colin Lizieri, Professor of Real Estate and Finance at the University of Reading, said that high foreign ownership levels made the market more vulnerable to external shocks and the sudden withdrawal of funds.

German investors owned 18 per cent of City office space in 2005, compared with 8.0 per cent in 2000, according to the study. The US share increased from 1.5 per cent to 6.8 per cent, while Japanese investors retreated from 7.6 per cent to 2.5 per cent. However, the rising stars in the British commercial property market were Ireland and Middle Eastern nations.

Irish investors ploughed £2.69 billion into the market in 2005, according to data from property agents DTZ. Middle Eastern investors, flush with cash in the wake of surging oil prices, spent £1.3 billion on the market last year, twice the amount invested in 2004, DTZ data revealed.

One key factor behind the changing commercial property landscape was that foreign ownership of stock in London-listed firms had surged from less than five per cent in 1981 to 33 per cent in 2004. “There are genuine, long-term risks,” Development Securities said in its study. Those risks included under-investment in buildings to maximise profits and a potential downturn in office occupation rates.

“Above all, the City of London is vulnerable to a major economic shock,” the report noted. “The transformed sector may offer improved access for a wider range of investors, but these are not costless gains: the price is the risk of greater volatility in the future.”