The sovereign wealth funds (SWFs) and cash-positive pension funds from Middle East and Asia are an emerging force behind the high level of global capital flowing into the Central London commercial real estate market, said a report.

Central London has always played a pivotal role in international commercial property investment both in a European and global context, completely overshadowing other cities in terms of cross-regional investment into European real estate, the global property adviser CBRE said in its latest research.

This is mainly because of its traditional strengths of transparency, long income flows and relative liquidity, it added.

Post-‘credit crunch’ this trend has become even stronger, with Central London attracting around 41 per cent of all European property investment from outside the region since 2008, compared to 17 per cent in the previous three-year period (2006 – 2008), the CBRE said.

Since the ‘credit crunch’ there has been a notable increase in Central London property investment market share by investors with long-term hold strategies such as cash-positive pension funds and SWFs.

Many of these players are new entrants to the European market and the presence of a number of Middle Eastern and Far Eastern investors is notable, the report stated.

The CBRE said over the past three years only one buyer from the United Kingdom (UK) - Legal and General- has invested more than £500 million in Central London commercial property; in contrast, over the same period the largest non-UK buyers invested more than £600 million, with cash-positive foreign pension funds and SWFs being key players in the current cycle.

This current influx of international capital is qualitatively different from previous foreign investment flows into Central London property, the expert pointed out.

Investment from the US is typically opportunistic in nature; German capital has mainly been from Open-Ended Funds and thus is sensitive to net cashflows (which are unpredictable); the Japanese money that came to London in the late 80s was investment by Life Insurance companies, and thus lacked the long investment horizon of SWFs and cash-positive pension funds, it added.

According to CBRE, a number of factors are driving SWF and cash-positive pension fund investment activity at present, namely insufficient domestic investment opportunities forcing capital overseas; diversification from domestic economies; and domestic regulatory change giving the potential for sizeable amounts of capital to flow into the real estate market from the pension fund industry.

Simon Barrowcliff, executive director, Central London Capital Markets, CBRE, said, 'The fundamental drivers of growth in cash-positive pension funds and SWFs are expected to continue and capital from these sources will continue to enter and power the Central London property investment market.'

'Legislative change within Asian pension funds to allow investment in foreign real estate is also likely to gain momentum, and expectations for the commodity market remain strong,' he noted.

'Asian investors, in particular, like the security provided by the UK legal system and its conglomerates and private funds look to London for strategic reasons and risk aversion,' he added.-TradeArabia News Service