LONDON-Foreigners have steadily increased their ownership of property in the City of London to nearly half of all available investment stock. The Germans own 18% and Americans 6.8%.

A study by Reading University found that city offices are also now heavily leveraged and are increasingly owned by private equity vehicles, many with short-term interests. The proportion of overseas ownership has more than doubled in less than 10 years, from 20% to 45%, or 36 million sf of office. Multiple owners now account for 54% of the total floor space available in the city. The debt outstanding on all commercial property in this country stood at £138 billion at the end of 2005, more than three times the size of the lending peak that preceded the last property crash.

“Traditionally, city property owners took a long-term view on their investments and traded infrequently, with almost all offices having a single owner,” the study stated. “By contrast, much of today’s investment activity seems focused on short-term gains with less regard for risk. This, in turn, raises a key question: What if a substantial number of investors exited the market at the same speed as they entered?”

The sheer weight of money chasing city investments has pushed up the value of property. Between January 2003 and December 2005, more than euro 20.4 billion ($26.13 billion) was invested, 45% of which came from overseas investors.

“The real estate market in London is now as global as the equity market,” says Michael Marx, finance director of Development Securities, which commissioned the study. “Twenty years ago, the city was almost entirely owned by UK institutions.” He adds that the city had seen the unusual phenomenon of prices that had risen sharply without an increase in demand from occupiers.

“Global money comes to places that it finds attractive,” he notes. “But this is not loyal money. At some point, something will happen and people will decide to look elsewhere. The investors are attuned to thinking globally.”

Institutional ownership of city property fell from 38% to 28% between 1995 and 2005. Over the same period, private equity vehicles increased their market share from 1% to 14%. Germans are the most predominant owners. Their share grew from 8% in 2000 to 18% in 2005.

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