Waning foreign interest in UK commercial real estate

Demand for UK commercial real estate from overseas investors slowed in the last three months of 2015 for a second straight quarter, signifying that weak oil prices and volatile stock markets continue to affect global economic growth, according to a new report by the Royal Institute of Chartered Surveyors (RICS). Nevertheless, the value of UK commercial property continues to rise due to a relatively short supply of assets. London reportedly attracted $40.5bn of commercial real estate transactions in 2015, with major investments there coming from Asia and the Middle East. Senior economists predict that even with fewer overseas buyers, the low interest rate environment, strong demand from other investors, limited supply and a growing economy will continue to underpin commercial property values and insulate the UK real estate sector during 2016.

Overseas investors have pulled back from the U.K. commercial real-estate market, a signal weak oil prices and volatile stock markets continue to bite, according to a survey of property agents.

Demand for U.K. commercial real estate from foreign investors slowed in the last three months of 2015 for a second straight quarter, according to the Royal Institute of Chartered Surveyors. The retreat comes as overall buyer interest in U.K. property markets grew at its slowest pace in more than two years.

Values of U.K. commercial property--such as offices, shops and warehouses--are broadly expected to keep rising due to robust demand for a limited number of assets, RICS said.

In London, commercial real estate appeared "overpriced to some extent" in the fourth quarter to 81% of agents surveyed, up from 77% in the third quarter, RICS said.

Strong demand for commercial real estate has pushed up prices in cities around the world. After the 2008 financial crisis, investors increasingly saw property as a haven from financial shocks, while returns looked better compared to other assets like bonds.

London, which has attracted major investors from Asia and the Mideast, has been a particular focus. Last year, $40.5 billion of commercial real-estate transactions were sealed in London, over half of the U.K. total of $72.7 billion, according to data-provider Real Capital Analytics.

Even with fewer foreign buyers, strong demand among other investors, limited supply, and a growing economy will continue to underpin commercial property values.

"For the time being, the real estate sector seems largely insulated from the turmoil affecting financial markets," said Simon Rubinsohn, chief economist at RICS, in a statement.

The low interest rate environment "provides further comfort for those parts of the property market where values are looking a little stretched and arguably more vulnerable to a material shift in monetary policy," said Mr. Rubinsohn. Markets expect the Bank of England to keep its base rate at 0.5% until at least 2017.

Write to Art Patnaude at art.patnaude@wsj.com