London is still a beacon for investors, according to industry leaders who discussed the capital’s prospects at MIPIM last week
Is London seen as the gateway to Europe by international investors?
Rebecca Worthington I don’t think it is about location specifically. I think it’s absolutely about the quality of the investment proposition and therefore I don’t think someone is coming into London as a first step to invest in Sheffield or Manchester any more than they are coming into London to invest in perhaps Poland or Nice. What I do think is that there are some very strong other cities in terms of investment propositions and for that purpose, yes, London is a great gateway, whether it’s Paris, whether it’s Frankfurt or other German cities.
London stacks up significantly within Europe. London is a world-class city. It is probably the pre-eminent financial services centre of the world and that, combined with everything from a stable, strong legal environment, time zone, language, all the reasons that are well-rehearsed, I think makes London probably the best location in Europe for investing.
What we need is a UK government that has got benign, long-term, planned, well-regulated businesses that it allows to get on and operate themselves. What we don’t need are these spikes of changes, whether it’s regulation or whether it’s tax. If we introduce mansion taxes into the UK, if we discourage high-net-worth individuals from coming here through onerous stamp duty, we could find ourselves in a similar boat to Paris.
David Marks People feel more comfortable in London initially but the search for yield drives people elsewhere. We are now seeing sovereign wealth and quasi-sovereign wealth funds from Basingstoke to Sheffield, so the search for yield can drive people out of London once they get comfortable with the general investment environment.
I do think London definitely stands out as a beacon right now. It has always stood out relative to other European cities, but for all the challenges, London looks pretty good compared to, say, the macro-environment and the general vibe in cities like Paris, which is very negative at the moment. And, dare I say, it’s their fault. They voted in a very left-wing government, with a 75% tax proposal and people are voting with their feet. Capital is leaking and people are leaving.
Is London capitalising as well as it can on the misfortune of others, Paris especially?
John Slade These things will strengthen London. I think at the moment we have a short-term currency movement against sterling as well, which is very positive But I don’t think Paris is burning quite yet. Yes, Monsieur Hollande wants 75% tax, but he hasn’t quite got that through, though I think he probably will at some stage during his five years, hopefully towards the end.
A lot of investors, though, the prime-end investors, are looking on a longer-term basis. The position of the euro, the position of the French government and French politics makes it very difficult, but the very big investors won’t be dissuaded because they are taking a five-, six-, seven-year horizon, they are not taking a one- or two-year horizon.
And if you are going into these big cities you can’t afford to want instant liquidity. The market usually is stable and if it goes, it recovers, but you need to have a little bit of time to sit with the investment to maintain your money. Paris at the moment is that sort of market. Short-term, yes, it’s very rocky, but it’s a fantastic city, it’s a world financial centre.
Is there a danger of a London bubble?
David Marks A bubble sounds dangerous, bubbles are dangerous, but I don’t think overseas capital pouring into either the residential or the commercial market is dangerous. I think pricing reflects the growth that is in London. If you are buying in the West End at 5% or less it reflects the fact that most people believe, whether it be retail or office, that you are going to get somewhere between 3% and 6% per annum rental growth. If you add that to the initial yield, a lot of people would argue that is a very reasonable risk and return.
Are global investor appetites changing?
James Petit The majority of the new money coming in has been into the CPD offices and hasn’t necessarily been branching out into the other sectors, but that undoubtedly will come. Diversification of the investor base has been here for a long time and London is becoming far more diversified in terms of its ownership and global players. Real estate is now beginning to catch up with the global market.
With investors that are more mature and developing their strategies in the UK, undoubtedly we will see some diversification away from London, primarily because they have built their London portfolio and they need to complement. We have seen that already with the purchase of One Angel Square in Manchester by two of our investors. That is a long-term investment, 25-year income stream and they can hold that for some time.
And we will see other funds begin to diversify into regional offices and the big retail centres. Logistics is a market that is misunderstood by a lot of the rest of the world, primarily because they don’t have the same shortages of planning or land space that we have in the UK so, you know, logistics; defensible but just a bit further down the stream, or upstream in terms of understanding.
