It’s a sure sign that while the recovery may be accelerating, jitters are never far away. It is evidenced by the question that pursues any investor who has announced a significant sale: Are you calling the top of the market?
This week it was Nick Leslau’s turn to insist he wasn’t calling the peak. He was bumped into that response after his AIM-listed Max Property Group agreed a £448m sale of the business to private equity house Blackstone (p38). The deal means he and partner Mike Brown are selling two years ahead of the business’s seven-year life expiry. No wonder that question followed. Not a bit of it, said Leslau. It was, he insisted, “a knock-out bid from a knock-out buyer” that persuaded him to do so, not fears around property’s direction.
Leslau won’t be the last to not call the top of the market, although someone eventually, inevitably will. (And many more will do so far too late in the day, of course.) And he isn’t the first to do so recently either.
In the past few months at results or deal announcement time, Berkeley Homes, Grosvenor and others have all been forced to insist they are not calling the top. Others will have to do so in the months ahead. Indeed, investor relations teams are probably prepping chief executives on how to answer that question as I type.
The very fact that the question is being asked so frequently is indicative. Some will dismiss it as lazy journalism; a clichéd question, scarcely deserving of an answer. You won’t be surprised that I disagree. I see it more as an indicator of the fragility that still exists in many parts of the market – even in, or perhaps especially in, some of its most prime spots.
There is another driving force. Rents have fallen at the top end of the prime residential market in London and there’s anecdotal evidence that this phenomenon is spreading further down the residential food chain too. It’s not a fear that’s prevalent in the commercial world yet, nevertheless the question – that question – will come.
I’d argue that its asking is a healthy brake, there to temper exuberance. If it stops being posited that may be the worst sign of all.
• It feels like a very long time since so many significant development announcements were made in a single week. What’s more the latest crop straddle all sectors and regions. Chancerygate is looking beyond the South East for its next phase of shed developments, a £100m spec push no less (p30). Meanwhile, the decision by government to make Birmingham the HS2 hub of the country will lead to the development of 6.5m sq ft of offices in the city and is likely to lead Hines and Ballymore to spec another 250,000 sq ft tower (p32).
But nowhere has caught the development bug quite like east London. Chinese developer ABP this week won consent for its £1bn scheme to redevelop Royal Albert Dock, E16 (p28). Knight Dragon – the Hong Kong investor (can you see a pattern here?) – has upped the number of homes it intends to deliver on Greenwich Peninsula by a 10th (p30). Meanwhile, Hammerson and Ballymore submitted their plans for the mixed-use redevelopment of the former Bishopsgate Goods Yard site (p31).
And for the record: it’s definitely too early to call the top of the development cycle.
• Interviewing Alex Jeffrey, M&G’s head of real estate, last year, I suggested he may become known as the Arthur Daley of property. The (light-hearted) jibe was based on his then recent acquisition of 18 British Car Auction sites across the UK for £240m. He wasn’t alone: L&G bought a £40m portfolio around the same time. Soon there could be more ‘Arfurs’ in property: jockey/property investor David Maxwell is selling a £250m portfolio of car showrooms (p31). Strong interest is expected: after all the accelerating recovery is, ahem, fuelling rents in the sector.
