It is safe to say the UK is not going to see record investment volumes from Russian individuals and entities this year.

Quite apart from the sanctions against people and companies associated with the Kremlin, wealthy Russians that are not subject to any restrictions know that their activities will be increasingly under the spotlight.

Yet, according to multiple capital markets experts, the bigger investment story, especially in London right now, is not Russia but China. According to Cushman & Wakefield, five years ago Chinese investors represented around 25% of all investment into the UK’s commercial property market.

Now, however, Chinese companies are actively divesting of commercial property, particularly London offices. So what’s going on – and what impact is it going to have on the UK property market?

The main catalyst for the recent divestments is the Evergrande debt crisis. Many companies – especially those that are state owned or have strong ties to the government – are heeding calls to repatriate capital and pay down debts in the wake of the ongoing fallout from the crisis.

“In terms of why Chinese investors are exiting positions, not just in London but across the world, it is partly related to capital controls and what’s been going on with Evergrande,” says Hawkins.

“Evergrande is a £300bn business, so that is mind-boggling in terms of real estate balance sheets. They’re encouraging some of the state-operated enterprises to bring capital back on shore and pay down some debt. It’s capital management; it’s good economics.”

That has had a trickle-down impact on other Chinese companies and individuals, even if they haven’t been asked to divest.

“Others will be seeing their fellow countrymen trading out and thinking ‘well, if they’ve traded out, maybe we should do so as well’,” says Hawkins.

Driven by fear

Another capital markets expert puts it more bluntly. “It’s a bit like the stock market,” he says. “People are driven by fear and greed and there’s a herd mentality. When you see other people trade out, you start to get questioned at board level. People are being asked: ‘Should we carry on being long-term holders in London?’”

James Abrahams, a partner in the City investment and development team at Allsop, agrees. He adds that there is now a shortage of Hong Kong-based investors in particular who would like to do more in London.

However, he says: “One thing to remember about Hong Kong [high-net-worth individuals] is that they make their money in China mainly so they kind of have to play by their rules.”

For the time being at least, Andrew Hawkins, international partner at Cushman & Wakefield, does not see the uptick in divestment activity as a big issue.

“I wouldn’t describe the Chinese divesting from London as being a problem,” he says.

“I think in the main the Chinese have been quite shrewd investors and their timing has been good. Most of the Chinese equity is divesting at a profit.”

Safe haven

Hawkins adds that there is no shortage of alternative investors on the lookout for opportunities in the capital and beyond, which more than makes up for dwindling Chinese – and Russian, for that matter – activity.

“The horrendous war [in Ukraine] paradoxically will mean that London is even more of a safe haven as part of a global capital play,” he says. “There will be plenty of investors who will want to buy whatever the Chinese divest from.”

It is not as if the Chinese have suddenly gone cold on commercial property in London. The fact that Chinese investors are making a decent return on their investments in UK property means you can’t liken the current situation to a fire-sale. But that could change if the Chinese government places more pressure on investors to divest their overseas assets in the future.

UK investment agents are monitoring the situation closely.