Global capital inflows into the London office market: the Brexit effect?

What the paper says

Purpose While London remains a key global investment hub, Brexit-induced uncertainties and economic shifts have spurred diversification into other European markets. The paper underscores the need for adaptive strategies, including policy interventions to enhance fiscal and monetary stability, and highlights the importance of currency risk management for investors navigating a volatile global investment landscape. These insights offer valuable implications for sustaining London's competitiveness in an evolving geopolitical and economic context. Design/methodology/approach This study investigates the influence of Brexit on global capital flows into London's office market using data from Real Capital Analytics (RCA/MSCI), encompassing office transactions between 2016 and 2023. The analysis employs autoregressive distributed lag models. Findings The research evaluating how domestic and international factors have influenced investment patterns in the post-Brexit era highlights the critical role of the real effective exchange rate, which significantly impacts cross-border investments in both the short and long run, with depreciation of the pound sterling driving increased inflows. Domestic variables such as UK stock market capitalization and equivalent yield impact also emerged as significant factors influencing capital flows. While London's status as a prime investment destination persists, the research identifies a decline in transaction volumes, reflecting investor caution and diversification towards other European markets post-Brexit. The analysis reveals that global factors, including geopolitical tensions and risk indices, play a relatively limited role compared to domestic market conditions in shaping investment patterns. These findings underscore the importance of exchange rate stability, strategic currency risk management, and adaptive policies to sustain London's competitiveness amid heightened economic and geopolitical uncertainty. Originality/value This paper offers a novel contribution by providing a comprehensive analysis of the interaction between domestic and international factors affecting cross-border real estate capital flows in London's office market in the post-Brexit era. It sheds new light on how domestic economic conditions outweigh global factors in shaping investment decisions and offers crucial policy recommendations for sustaining London's competitive edge.