London Property Summit 2013 - Will the international love affair with our Capital’s property continue?
On an unexpectedly bright October afternoon, FTI Consulting, as part of the London Property Summit, hosted a discussion exploring the international love affair with our Capital’s property and the potential opportunities and pitfalls of investing. Hosted by Giles Barrie, Managing Director, FTI Consulting Strategic Communications Practice and former editor of Property Week, the panel included Ciaran Carvalho, Partner in the Nabarro Real Estate Team and Head of the Real Estate Group; Bas Kundu, Managing Director in the FTI Consulting Real Estate Practice; and Tim Haynes, Senior Managing Director in the FTI Consulting Construction Solutions Practice.
Who’s Hungry For UK Real Estate?
Opening the discussion, Ciaran Carvalho identified key themes and highlights from research conducted in spring 2013 by Nabarro and FTI Consulting. Over 3000 UK based and international investors were surveyed. It quickly became apparent that London is very much where international investor capital is directed. Over the next two years 73 per cent thought that investor and occupier appetite for UK real estate would continue and that the attractiveness of the Capital would increase. Furthermore, 64 per cent thought it would continue to increase over the next five years, illustrating the longevity of its appeal.
What are the drivers for investors?
Various drivers may be cited: a strong legal framework; economic stability; and the English language (English remaining the international language of business, which makes us very fortunate, if not a little lazy). Events across Europe and the Arab Spring have all contributed to international capital entering the country, which is seen as a safe haven. Furthermore, with high grade London property, investors always have an exit route for the investment, much like a bond (although transacting takes a little longer). This is an attractive proposition. Investment performance benchmarking was also highlighted as a driver as it raised the standard of professional practice levels in the industry.
Drivers for occupiers. Why be in London?
The educational system is a huge draw for overseas investors who educate their children in London and have an affinity with the Capital. In addition, London is seen as a capital of culture which can be rivalled only by a handful of world cities.
What do investors have the appetite for?
While investment in offices remains high, the growth in appetite for the residential sector is significant. Frequently considered a top asset class internationally, in the UK it has traditionally been seen as more troublesome for large scale investment.
Retail remains challenging due to the decline in the high street. However, there is a shift to distribution and logistics due to the rise of internet shopping. Asset classes that require additional operators and contractors such as student accommodation, leisure and hotels are often seen as a less attractive investment opportunity (at least initially due to the more intensive asset management requirements). Management contracts usually mean that the risk is carried by the owner rather than the occupier, so there is less certainty over income flows.
Common deterrents for investors and occupiers?
Current planning laws, a clunky tax system and the regulatory framework are all deterrents, whilst an ageing infrastructure network is also problematic.
Looking into the future
The UK sits centrally on the world map and business can be conducted easily from both the East and the West. At present the Middle East and Far East are the largest investors, though it’s likely that the Far East will soon lead the pack. There is huge demand and scope for investment. Perhaps the only question to ask is how will we meet the demand?