By Simon Mallinson on June 25th, 2019
The sale of Riverbank House in London for £390 million ($530 million) was one of the biggest transactions in the U.K. capital last year. The deal was also the largest single asset acquisition by South African investors in 2018, highlighting the appetite of these players for commercial real estate acquisitions outside their domestic market.
In fact, the gulf between investment activity in South Africa and overseas spending by South African investors has never been greater. These players invested about four times as much internationally than was spent in their home market during 2018. On the back of weaker-than-expected domestic economic growth in the first quarter of 2019, it’s likely that investors will continue to explore overseas exposure.
International activity overtook domestic investment in 2016 and since then the gap between overseas and domestic spending has widened significantly. Domestic acquisition volume fell more than 50% between 2017 and 2018 as listed entities pulled back and became net sellers. Institutional investors, meanwhile, have remained net acquirers and international players have stayed away. (Spending by cross-border investors in South Africa remains negligible — typically less than 5% of annual investment activity.)
South Africa-headquartered investors placed €4.3 billion ($4.9 billion) overseas in 2018, of which over 60% was invested in retail, and nearly 20% into each of the office and industrial sectors. All the cross-border investment for the year took place in Europe, with 30% focused on Poland and 17% into the U.K.
Listed entities were the top overseas buyers last year, with Redefine, Vukile and NEPI Rockcastle topping the list. The largest deal was the purchase of a Spanish retail asset portfolio by Vukile Property Fund for €489m from Unibail-Rodamco. The acquisition of the Riverbank House office property in Central London was the biggest single asset deal; Oxygen Asset Management purchased the property on behalf of South Africa’s Zeno Capital.
Back in the home market, given slowing transaction activity and the shrinking economy, cap rates may rise and present a buying opportunity. Investors will be reassured if the government can fulfil its objective of boosting economic growth while consolidating the country’s fiscal position. For now though, the capital flows are outbound.
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