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Skylines for sale
The property development pipeline is also slowing dramatically. The Construction Products Association, which represents the UK's commercial building industry, expects the US$33bn sector will shrink over the next three years as demand from end-users weakens and banks rein back on lending.
It also predicts that housing starts will reach their lowest level since 1945 at around 127,000, or 30% down from 2007.
The housing market is in serious decline with mortgage approvals touching their lowest levels in nine years according to the Bank of England.
At the same time, the share prices of publicly-traded homebuilders have fallen by an average of 30% in the past month, reflecting what UBS analyst Mark Stockdale described as an "Armageddon" scenario.
Taylor Wimpey Plc, Britain's largest homebuilder, had its credit score on some of its debt lowered to non-investment junk grade by Fitch Rating last week. Now many analysts expect to see either a wave of rights issues across the sector as builders desperately seek to raise cash, or an influx of capital from strategic investors, with Gulf players likely to figure largely in the mix.
The UK's commercial real estate investment industry has in the past relied on the local banking sector to provide the capital required for heavily leveraged property acquisitions and securitisations.
But the big banks are curtailing lending to the sector as a result of the global credit squeeze, and in response to the declining value of commercial property portfolios.
"With the banks at their lending limits, where do you go? The most obvious place to look for cash now is the Middle East," says Yeandle, who predicts an increase in direct and indirect property investment in London's distressed real estate markets.
"I think we will see a lot more activity, whether it's direct corporate acquisitions, or an increase in the number of joint ventures, right down to buying individual buildings," he says.
Indirect investment in the publicly-traded real estate sector, where some companies are trading at a discount of up to 40% to their net asset values, may also appeal to sovereign wealth funds from the region, according to Yeandle.
With such a disparity, the sector may look ripe for asset stripping by potential buyers, although perhaps a bigger attraction for Gulf real estate companies eyeing the sector is the possibility of tapping project management, development and surveying skills that are in high demand across the Middle East as ever larger real estate developments are launched.
"These investors are extremely savvy and big corporate acquisitions give them exposure not only to great products but also to skills sets, which will be on the critical path going forward," says Yeandle.
"There are some enormous projects starting across the region and one thing that is always in short supply is the skilled people to implement them."
The government of Kuwait paid US$vv786m to acquire the Norman Foster-designed Willis Building at 51 Lime Street from British Land Co, the largest property company by assets in the UK.
The Bishopsgate Tower, originally known as the ‘Helter Skelter' building because of its shape and which is now called the Pinnacle, was bought for about US$391m by Arab investments.
Qatar this year bought 80% of the Shard Tower, which will be London's first 1000 ft tower, after the developers encountered problems raising enough capital to fund construction.
Oman's State General Reserve Fund co-owns the Heron Tower, a US$2bn skyscraper that is being built by Swedish construction giant Skanska. The 46-floor building will open in 2011.
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