LONDON - Overseas investment in U.K. commercial property declined 20.9% in 1994, falling to (pounds) 1.74 billion ($2.75 billion) from (pounds) 2.2 billion the year before, according to DTZ Debenham Thorpe Ltd., international property advisers.
Still, last year's total was well above the seven-year low set in 1992 of (pounds) 1.3 billion. And while some overseas investors reduced their investments in the U.K. real estate market, others raised their holdings. This bodes well for the long term, according to the DTZ report.
For the past three years, German investors have been the biggest source of funds. They invested about (pounds) 475 million in British commercial property last year - 29% of total direct overseas investment. German open-end property funds have seen their value double since 1992, leading to a search for new markets for investment.
U.S. and Swedish investors increased their investments in U.K. properties last year. U.S. investors, while accounting for only 5% of non-U.K. sourced acquisitions, amounted to (pounds) 82 million. That's well above U.S. average annual purchases of (pounds) 24 million from 1990 through 1993.
Swedish investment - largely purchases by the state pension fund - invested (pounds) 187 million in 1994, causing Swedish investment to soar to 12% of the total from 3% in 1993.
Far Eastern and Middle Eastern investors, on the other hand, have reduced their new purchases. For example, Hong Kong and Chinese investment accounted for only 5% of new purchases last year, down sharply from 12% in 1993. Chinese authorities called for a temporary freeze on overseas investment at the end of 1993.
Middle Eastern investment slowed to (pounds) 120 million last year from (pounds) 380 million the year before. The DTZ report speculated that more assets are being invested domestically, given greater political stability in the Middle East.
Also, the drop in world oil prices has hurt investors' cash flows.
Investments from all countries, however, are understated by the report, because 19% of purchases stem from pools with investors scattered worldwide.
Attracted to trophy properties, international investors' favorite area remained central London, into which they poured (pounds) 1.1 billion last year.
Office buildings accounted for more than three-quarters of the value of all purchases made in 1994.
Sales, however, increased dramatically in 1994, amounting to (pounds) 1.25 billion. Over half of the sales stemmed from European sources, with Germany accounting for 16% and Scandinavia for 19.5% of total sales.
Some investors took profits in the rising markets of the past 18 months, the report said. In addition, improvement in values following Britain's departure from the exchange rate mechanism in late 1992 triggered sell-offs, the report said.
Improving property markets, particularly in continental Europe and North America, also caused some investors to shift their strategies.
But statistics mask the fact that nearly one-third of all sales by overseas investors (pounds) 360 million) were made to other international investors. In fact, the (pounds) 103.5 million sale of the John Lewis headquarters was made by one German investor to another, the report noted.