U.K. Commercial Property Investment Fell 9% on Non-London Slump

Investors bought 30 billion pounds ($49 billion) of income-producing property in the U.K. this year, about 9 percent less than in 2011, according to broker Jones Lang LaSalle Inc. (JLL)

London real estate deals totaled 18 billion pounds in 2012, the most in four years, the Chicago-based broker said in a report today. Purchases outside the U.K. capital reached 12 billion pounds, the lowest amount in that period.

A lack of prime properties available for purchase and limited lending by U.K. banks means investors with cash will start developing properties in central London in 2013, and those buildings will be in demand when they’re completed, the company forecast. Development tends to generate greater potential returns than investments in completed buildings with rent-paying tenants in place.

“Given the limited finance for this type of activity, pricing will be competitive for those with equity and therefore we expect to see more overseas capital looking for opportunities to partner with local specialists and fund prime developments,” Jones Lang said.

Other investors will try to improve the quality of existing buildings in London or change their use to increase rental income and boost the selling price, according to the company. Blackstone Group LP, manager of the world’s biggest property fund, has begun to cash in that sort of investment.

Banks will continue to sell off distressed loan books secured by real estate in 2013 and funds that bought loans from financial institutions in 2009 and 2010 may sell them this year, according to the report.

U.K. funds will consider buying real estate outside London next year, the broker predicted. “In the regional markets, capital values have not yet started to recover and an anticipated recovery has yet to be priced in,” it said.

To contact the reporter on this story: Neil Callanan in London at ncallanan@bloomberg.net.

To contact the editor responsible for this story: Andrew Blackman at ablackman@bloomberg.net.

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