EXPO REAL: London calling – is now the time to invest?
16:00 - 17:00
Summary Report
London’s story is ‘a story of resilience’
Investors are taking a long-term view on London and looking well beyond Brexit, panellists agreed at the PropertyEU London calling: is now the time to invest? briefing which was held at EXPO REAL in October.
‘Tenants as well as investors are seeing through the noise and political mess of Brexit, which has not affected the occupier market at all,’ said Julian Agnew, UK Chief Investment Officer, La Salle Investment Management. ‘Demand is strong and supply is low, especially in the City, and this is driving capital to begin refurbishment and invest in value-add.’
Capital is pouring in, especially from the Middle East and Asian countries like South Korea, Singapore and Japan. ‘The cost of hedging makes it more attractive for an Asian investor to buy an asset in London,’ said Simon Wallace, head of research alternatives, Europe, DWS. ‘They believe that even a hard Brexit would have a minimal impact on London.’
Foreign investors like the depth and liquidity of the market, and the fact that it is possible to buy sizeable assets at good yields. ‘London is a truly global city and it boasts numerous enduring structural competitive advantages,’ said Mahdi Mokrane, head of European research and strategy, LaSalle Investment Management. ‘Aside from the yield premium, if you are a foreign investor now you have a 10-15% buffer because of the currency play.’
Another strength of the UK market is that ‘returns have been consistently higher than in the Continent,’ said Sven Schaltegger, director private equity real estate, Credit Suisse Asset Management. ‘It is easy to underestimate the resilience of the UK market.’
An ultra-prime asset like Goldman Sachs’ new headquarters in the City has just been sold to Korea’s National Pension Service for £1.2 bn, the second-largest deal ever for an office building in London. ‘It is 100% leased on a 25-year lease with a ten-year extension option,’ Mokrane said. ‘The yield is 4.15%, while in Paris or Munich it would be south of 3% for that quality of asset and long let.’
Asian capital has been very active in the UK market this year. ‘China and Hong Kong are taking a step back, but they are being replaced by South Korean, Singapore and Japanese capital,’ said Richard Divall, head of cross-border capital markets, EMEA, Colliers International. ‘Australian investors are also coming to the UK. Never underestimate the old colonial link, the familiarity with the language, rule of law and the English tax system. ’
There have been a lot of tax changes in the UK recently , but they have not put global capital off. ‘Investors don’t let the tax tail wag the investment dog,’ said Howard Freedman, partner & head of real estate and construction, RSM UK. ‘They regard the UK as financially stable, notwithstanding Brexit, and they invest in quality for the long term.’
Demand for prime offices is such that vacancies in the City are at record lows. ‘The reality is that, despite the gloomy forecasts of an exodus after the EU referendum, so far the City has lost just 630 jobs, not thousands,’ said Mokrane. ‘The story of London is a story of resilience.’
There is an inevitable element of uncertainty in the run-up to the UK’s exit from the UK. ‘People will be getting nervous as we close to the Brexit date and there will be more caution,’ said Wallace.
But there is a strong case to be made for thinking long-term and looking beyond Brexit. ‘There are great opportunities in smart London, areas like the City and Southwark which are undersupplied and in great demand,’ Agnew said. ‘If you wait until all the uncertainty has gone it will be too late.’
