Prime central London has lost a little of its lustre in recent months, at least as far as some overseas residential investors are concerned.
Rumours abound that areas such as the Nine Elms corridor, SW8, universally lauded as recently as a year ago, are now struggling.
An estimated 54,000 homes valued at more than £1m are planned or under construction in London. This figure may outweigh the number of potential buyers as global demand fades.
The oversupply in the prime central London market was already apparent last summer. What was in short supply was good commercial property. The smart developers, therefore, are thinking twice about their plans to convert central London commercial space to residential.
It is hardly surprising that the prime residential market has lost its froth, given growing international economic instability combined with last month’s extra stamp duty charges.
The premium for London’s super mansions began to erode two to three years ago and this erosion is now evident in the prime central London market more generally.
We also have to contend with the threat of Brexit. Whether it is a general election or a referendum, market uncertainty is at its most acute in the run-up to the vote, and Brexit is no exception. In such circumstances, it would have been much more of a surprise if prime residential remained unscathed.
And yet the malaise has not spread to the whole market. There are areas that still offer attractive returns. The periphery of London as well as other UK cities look good for residential growth over the next few years, especially where there are improved transport links.
On the flipside, the prime London office market has been heating up for three years, with rents rocketing as supply has dwindled. Those developers that are quick on their feet are reversing their office-to-resi plans here before demand stabilises, as seems likely over the next year or two.
As with residential, commercial demand is expected to shift to more affordable zones outside London and in other major cities.
As the market heats and cools we have found that the best opportunities are within a one-hour commute as workers see affordability outside central London. To that end, we have recently sold a site in Old Street, EC1, that will be developed for commercial use, while at the same time buying an office building in Aylesbury, Buckinghamshire, which we plan to convert into housing.
Over the past year, outer London areas such as Kentish Town, NW5, and Lewisham, SE13, and commuter towns such as Slough in Berkshire and Hook and Fleet in Hampshire have shown promise as permitted development rights start to resonate across the private rented sector. We expect commercial prospects in such locations to follow suit as office landlords improve their standards and achieve healthy rents, prompting new schemes.
Today, with the prevailing uncertainty in central London residential, it is important for property investors to move quickly and to keep an open mind on strategy. Flexibility is the key.
M Hossein Abedinzadeh is founder of MHA London
