Report | Intelligent Investment

UK Capital Flows In & Out

March 7, 2023 8 Minute Read

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Executive Summary

  • UK investment volumes in 2022 totalled £61.1bn despite challenging market conditions in the second half of the year
  • Inbound investment increased in 2022 compared to 2021. The largest share (39%) of cross-border capital came from North American investors
  • Offices attracted the most cross-border investment in 2022, followed by the residential and industrial sectors
  • Europe remained the primary destination for UK outbound capital in 2022, with industrial and office sectors attracting the most investment

Investment Volumes

Investment volumes in the UK totalled £10.1bn in Q4 2022, bringing the full-year total for 2022 to £61.1bn. Q4 saw less activity than Q3 against a backdrop of challenging conditions in the economy and financial markets. Yet despite the quarterly decline in Q4, investment volumes throughout 2022 were only 2% below 2021 levels, following a strong first half to the year.

Inbound investment throughout 2022 totalled £35.3bn. This represented a 3% increase compared with 2021. North American investors were the largest contributors of cross-border investment in 2022, with a 39% share, followed by European investors, contributing 29%. Asian investment totalled £8.1bn across the year, which is the most investment received from this region since 2018.

The office sector was the primary target for cross-border investment in the UK in 2022, attracting 38% of inbound capital, a 21% increase on 2021 levels. The industrial and residential sectors both received a share of 21% of cross-border investment each in 2022. The rest of the UK attracted more inbound capital than London, but London saw a significant increase on 2021 investment levels.

Top Regional Inflow & Outflow

Inbound Investment Trends

Inflows by Region

Domestic investors purchased 42% of the £61.1bn investment property transacted during 2022. Inbound capital from cross-border investors totalled £35.3bn, which was marginally higher than cross-border investment levels in 2021. In Q4 2022 alone, £5.7bn of property was purchased by cross-border investors.

Inbound Capital by Source

Source: CBRE Research 2022, Real Capital Analytics.

After domestic investment, North America was the second largest source of capital for investment, totalling £13.9bn. North America accounted for 23% all capital invested and 39% of inbound capital in 2022, but North American investment was 18.6% below 2021 levels. Europe was the third largest source of capital with £10.4bn, representing a 29% share of inbound investment. Asian investment at £8.1bn was more than double the level seen in 2021, representing 23% of inbound capital.

Share of International Capital in Investment Volumes

Source: CBRE Research 2022, Real Capital Analytics.

Inflows by Sector

£13.6bn of inbound capital was invested into UK office assets in 2022, which was a 22% increase compared with 2021. The residential sector attracted the second largest amount of capital from cross-border investors throughout 2022 with £7.5bn. In Q4 alone, 67% of inbound capital was for residential assets. Cross-border investors purchased £7.3bn of industrial assets in the UK during 2022, but 56% of investment in this sector was still accounted for by domestic investors. Inbound capital for acquisitions in the retail sector totalled £3.6bn in 2022, a 48% increase compared with 2021.

Transaction Volumes by Sector

Source: CBRE Research 2022, Real Capital Analytics.

Inflows by Location

Other parts of the UK attracted more inbound capital than London throughout 2022. The Rest of the UK attracted £20.3bn of investment throughout the year compared to £15bn for London, with the share of inbound capital being 58% to 42%, respectively. However, London’s share of cross-border investment increased compared with 2021, up 46% on last year’s level.

Share of Inbound Capital by Location of Acquisition

Source: CBRE Research 2022, Real Capital Analytics.

Outbound Investment Trends

Outflows by Region

UK investors directly purchased £10.2bn of real estate assets outside the UK during 2022, including £1.8bn in Q4. Europe remained the primary destination of UK outbound capital, accounting for £8.5bn, which was 83% of all UK cross-border investment in 2022. North America and Asia attracted similar levels of UK capital to each other, with investment in those regions totalling £904m and £759m, respectively. These smaller values do not indicate a lack of interest in those regions from UK investors; indirect investment via funds or REITs may be a preferred route for UK capital in these cases.

Outbound Capital by Destination

Source: CBRE Research 2022, Real Capital Analytics.

Outflows by Sector

Industrial and office assets accounted for 60% of UK investment overseas during 2022. These sectors attracted £3.2bn and £3bn respectively through the full year, including £0.7bn and £0.4bn in Q4. UK investors spent £2bn on residential assets overseas, while outbound investment in the retail sector was £660m.

Capital Outflows by Sector

Source: CBRE Research 2022, Real Capital Analytics.

Looking Forward

Despite rapid changes in the economy in Q4, volumes for the full year were only 2% lower than 2021 levels. While markets and investors are still adjusting to the higher interest rate environment, value movements appear to have stabilised at the beginning of 2023. According to results of CBRE’s Investor Intentions Survey, investors in the UK and across Europe are expecting to maintain similar levels of real estate investment in 2023, relative to 2022. This provides grounds for optimism about transaction volumes in the year ahead.