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Reports focusing on 2012 statistics emphasised the noticeable influx of foreign investment into the London real estate sector, bringing the city into the top five in Europe in terms of real estate investment. It was a trend which could not have been predicted a few years ago, the capital’s popularity having been bolstered by the unfurling Euro zone crisis. But what does 2013 hold? Is it possible to predict where the market will turn next?
Perhaps. If we look a little deeper at London’s identity in terms of real estate, ‘safe haven’ is how it has been perceived, by the investors – largely overseas – and by the analysts. However, with safe havens, investors have to deal with lower returns and not-so-great investment yields. As London has been a safe haven throughout the recession, we have seen demand high with very little supply and therefore the costs have remained as high – as in boomtime.
But do we now see that the City in particular is losing its attraction for investors? There are signs that they are beginning to venture away from these high prices that are increasing as Britain’s economy is slowing down. Offices in Central London gained a reputation as being a safe focus for investment during the global market chaos and hence the prices of central London offices soared by 52% from mid-2009 to the end of 2012. The only comparable in the property market is that of the luxury residential market within London, which also grew at a similar rate.
Eugene O’Sullivan, director at Morgan Pryce, notes, “Investors are now feeling the pinch from investing in London, as the returns are very low and the capital values are exposed to a blow.” Until now, around 64% of money invested into the commercial market was from abroad, up from 2011 when it was 61% and 2010 at 55%. Low returns are not the only worry for investors; recent events have increased concerns about the possible break-up of the Euro zone and Britain’s economic growth is far from guaranteed or even stable, close as it is to losing its AAA credit rating and with the pound at a six-month low in comparison with the dollar. Noticeable in particular is the slow-down in Chinese investment.
London is a bubble in itself, and is looking expensive compared to the rest of the UK. Outside of London, office values have dropped by 14% since 2009, and the gap between offices in Central London and British offices elsewhere is around 10% as opposed to 1 to 2% before the recession in 2007. But there is interest starting to evolve around the outskirts of London, especially within Home Counties, where industrial parks are quick becoming home to the headquarters of global brands.
Morgan Pryce is a specialist tenant acquisition agent with offices in Oxford Circus and the City. Morgan Pryce specialises in search, negotiation and project management and works exclusively for tenants.