LREF 2019: London is still king, but can it stay that way?

Despite the dreaded B-word, demand for London real estate is still increasing, according to Derwent London’s new chief executive, Paul Williams, which is making securing new assets for its portfolio very difficult.

Williams said that finding sites at a price Derwent was comfortable to pay was becoming increasingly difficult as there were no distressed sellers.

Speaking at EG’s London Question Time at the London Real Estate Forum last week, Williams added: “People are actually buying buildings with more uncertainty. After the vote we were perceived to have a lot in the pipeline and analysts were concerned there was too much development, but since the vote we have done something like £100m of lettings”.

Meanwhile, Justin Black, CC Land’s head of UK development, said the fundamentals of London were sound “irrespective of Brexit and as a long-term investor we see it as a blip”.

“The bigger issue is the political uncertainty – the fact that we can’t say who’s going to be in government or for how long, and the fact that our politicians aren’t actually doing anything,” he said.

Black added that CC Land was also looking up the risk curve like others, but that the hiatus caused by the politicians was holding people back.

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For Philip Pearce, executive director, City agency and investment at Savills, low vacancy rates off the back of four years of above-average take-up has meant that the London market is “a lot more robust than it really should be”.

He added: “It’s the occupiers that have taken up the mantle of driving London forward because, essentially, they still see London as a vibrant place to be and they don’t have the luxury of not doing something. They have to plan ahead – to acquire a new HQ in London requires five years of planning.”

Occupiers have also started to drive a new way of thinking in real estate. Space is no longer just space; location is no longer king. How a space delivers for people, for end-users, is fast becoming one of the most important elements in real estate.

“It’s unfortunate that there has been a tendency to talk about units, the asset, to look at the spreadsheet and run the numbers and forget that everything we do, whatever asset class you are in, is about people,” said Alexandra Notay, build to rent fund director at PfP Capital.

“If we have talked about the customer, we have meant the client, the investor, the owner; we haven’t meant the end-user, the person in that building, whether it’s the office tenant, shopper, homeowner, renter.”

She added: “Language drives the behaviours: if you are thinking about just units and a spreadsheet, you are only going to think about the numeric value; whereas if you think about what’s behind that, you’re going to think more broadly.”

Stephanie Davies, chief executive of Laughology, said that while the sector was getting better at focusing on end-users, it still had a long way to go.

CC Land’s Black agreed. “There is much more forward thinking. There is much more looking to create people-oriented buildings now, particularly on the commercial side, which wasn’t prevalent five to 10 years ago,” he said. “From an overseas investor perspective, we still focus on the product, but that product is the culmination of the talented people that have been involved with it.

“If you surround yourselves with best-in-class developers and consultants, you will get the best-in-class product and that’s what we are focusing on at CC Land.”

Savills’ Pearce said: “The challenge for employers at the moment is to get people to come to work, as technology has enabled them to not come to the office but still be productive at home. Employers have woken up to the fact that it’s incumbent upon them to create an environment where people really genuinely want to come to work and not be lonely and be part of a community.”