Intelligent Investment

UK Capital Flows In & Out

15 Jun 2022 10 Minute Read

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Executive Summary

  • The UK real estate investment market recovery continued in Q1 2022. Total UK CRE investment was £17.2bn in 2022 Q1, up 52% on the previous year. £6.4bn of investment was domestically generated, the remaining 63% came from cross border investors. The highest share came from North America, 42%, with a further 26% of capital flowing from Asia and 22% from Europe.
  • Over half the inbound capital - £6bn - targeted the office sector. The share of investment in Industrial and logistics has lowered, totalling 20%, residential assets attracted 16% of the £10.79 cross-regional investment.
  • In Q1 2022, £2.15bn of UK capital was invested overseas, the majority targeting European assets.

Top Regional Inflow & Outflow

Inbound Investment Trends

Inflows by Region

The UK real estate investment market recovery continued in Q1 2022. Total UK CRE investment was £17.2bn in 2022 Q1, up 52% on the previous year. £6.4bn of investment was domestically generated, the remaining 63% came from cross border investors. The highest share came from North America, 45%, with a further 26% of capital flowing from Asia and 22% from Europe. Capital inflows originating from North America and Europe increased 15% and 7% respectively Y-o-Y.

Capital flows from Asia increased significantly over the year from £0.66bn in 2021 Q1 to £2.81bn in 2022 Q1. This partly reflects the lockdowns in Asia at the time, which had a marked impact on its outbound capital flows. At the end of March 2022, Shanghai went into full lockdown and is expected to remain with restrictions for most of Q2. Although this may hinder some investment transactions, it shouldn’t detract from the overall momentum coming from the wider region.

Capital Inflows by Region of Origin

Source: CBRE Research 2022, Real Capital Analytics.

Inflows by Sector

Over half of inbound capital targeted the office sector resulting in a total of £6.01bn invested in the sector. This is a marked pick up; in 2021 a third of capital was directed at the office sector, and likely reflects pent-up demand and more certainty around the future of hybrid working. Industrial and logistics investment was 14% lower year on year at £2.1bn, and its share of overall investment down from 28 to 20%. Residential assets garnered 16% of the £10.79 cross-regional investment.

Capital Inflows by Sector

Source: CBRE Research 2022, Real Capital Analytics.

Outbound Investment Trends

Outflows by Region

In Q1 2022, £2.15bn of CRE investment flowed out of the UK. This was 15% higher than in Q1 2021, but 52% below £4.16bn recorded in Q4 2021. Most of UK capital flowed to Europe totalling £2.21bn. North America attracted £0.04bn.

Overall in 2021, £11.09bn of UK capital targeted RE assets outside of the UK. Europe was the primary target for capital (81%), and capital flowing to North America remained stable at 14%.

Capital Outflows by Region

Source: CBRE Research 2022, Real Capital Analytics.

Outflows by Sector

Capital flowing out of the UK predominantly targets office, industrial and residential assets in Europe and North America.

In Q1 2022, 36% of capital was directed towards the office sector, with 32% for logistics assets. The residential sector attracted 20% of all capital outflows. Hotel assets in Europe and North America saw a large fall in capital flows from the UK. In Q1 2021, 17% of outbound capital flowed to hotel assets. In contrast, capital outflows directed at the hotel sector decreased to 2% in Q1 2022.

Capital Outflows by Sector

Source: CBRE Research 2022, Real Capital Analytics.

Further Growth Expected

Over the last 15 years, cross-regional investment into the UK increased from 37% to 63%. North American capital continues to be the second largest source of UK investment with a total of £4.52bn in Q1 2022. The expected slower economic growth over the upcoming months may influence the return of the upward trend of capital inflows. The share of domestic investment has decreased significantly from 60% to 39%.

North American capital now makes up the second largest source of UK investment, with capital inflows amounting to £10.6bn in 2020.

Having risen sharply in 2014/15, the level of outbound capital remained broadly stable until 2019. The ratio of outbound to inbound capital has been broadly rising over the past decade. In 2010 outbound capital was around 27%, it peaked in 2019 at 50%.

Longer Term Trends

Source: CBRE Research 2022, Real Capital Analytics.