After years of unprecedented economic growth, China's domestic economy looks like it could be faltering. In response to this slow-down, China's corporates and super rich are seeking safe havens in which to invest their money. One such haven of interest is the UK's commercial property market, and the Scarborough Group looks like it could benefit handsomely from Chinese cash.
What's going on?
Reports indicate that China's Hualing Industry and Trade Group is investing in three of the Scarborough Group's developments in Leeds, Manchester and Sheffield – these projects have a combined value of £1.2bn, and will result in over 880,000 square feet of new commercial space being built.
The UK's chancellor George Osborne, who announced the deal when visiting Hualing's head office, clearly sees China as a suitable economic bedfellow in spite of Beijing's potential fragility. The chancellor also views Chinese firms as major job creators, and with good reason: the Scarborough projects alone are expected to create 18,000 new roles.
What does the future hold?
The Scarborough deal could set the tone for the UK's commercial property market in years to come, and is being welcomed as an opportunity to drive wealth and prosperity beyond South-East England.
The London market is approaching boiling point after years of domination by international sovereign wealth funds that have acquired "super prime" areas of the capital. Chinese investors seem to be looking elsewhere for genuine value, and are finding gaps in the 'regional' UK commercial property market.
This new trend bodes well for cities like Manchester and Leeds that are recovering from bruises caused by the recession. Edinburgh is also attracting attention; the city recently hosted a delegation of Chinese investors who were wooed by commercial property experts and local government officials.
While there may be many chances for commercial property owners to benefit from expanding Chinese interest in the future, British landlords need healthy cash flows to bargain with foreign investors from a position of strength. Unpaid invoices and low levels of liquidity could force landlords to rush into low-value deals, and could result in golden opportunities being wasted.