Overseas Investment: What does it mean for London?

Thursday 20 March 2014

London’s love affair with foreign property investors shows no sign of abating as they capitalise on the UK capital’s ‘safe haven’ status, stable political system and attractive returns.

But London must guard against pricing people out of the centre as housing pressures force workforces to consider moving out.

Those were some of the issues arising this morning from an NLA session on overseas investment, sponsored by Speechly Bircham and held in their offices at New Street Square.

London and Partners principal adviser for development and regeneration Katie Kopec set the scene, explaining that her role in facilitating inward investment was part of helping the mayor deliver his vision for 2020, with housing and jobs as his main priorities. London is the fastest growing city in Europe, said Kopec, adding around 75,000-100,000 people per year through pure growth rather than immigration, towards a population heading for 10 million by 2031. This is putting ‘huge pressures’ on housing, particularly in the ‘middle market’, although private rental is one area London and Partners are striving to encourage other investors in.

In commercial property, London is also strong, she said. ‘London has been and continues to be the main place where people come to invest in real estate’, said Kopec, whose organisation acts like a ‘matchmaker’ between foreign entities and developers or local authorities here. Specific areas of focus include Ruskin Square in Croydon, Silvertown, and Old Oak Common, where there will be a mayoral development corporation in place before the end of the year. Another, though, is Tottenham; ‘the mayor is really passionate about something happening in Tottenham, post-riots'.

Savills’ Global head of capital markets Simon Hope said that the bulk of inward investment was coming from the US and Asia Pacific – very strongly from China – going to the so-called ‘city states’ of Manhattan, Paris and London in particular. Last year saw the strongest 12 months ever in London’s commercial market, with quantitative easing clearly supporting the sector, and investors drawn by London’s currency, language, ‘phenomenal’ education’ and an interesting historic fabric to the city. Hope said the market was starting to see pre-lets return but beyond 2014 there is insufficient supply.

Residential, though, is ‘a whole lot more valuable than office space’ and people are flocking to the centre, although some 88% of new build stock has sold abroad to around 72 nationalities. ‘Living in London is like putting your finger in an electric socket’, he said. ‘It’s exciting.’

Battersea Power Station is one major scheme which would never finally have got going without foreign – and in this case Malaysian – money. Chief financial officer of Battersea Power Station Development Company Simon Murphy said the ‘absolute vision and desire to do something at Battersea’ from SP Setia Sime Darby had been key, but in conjunction with political will from central government, the GLA and local authorities and certainty about things like the Northern Line Extension. The project includes a £750million restoration of the power station, 40% of the space being devoted to amenities for the whole area, 3,500 new homes – 500 of them affordable – 18 acres of public space and including a new six acre riverside park. Some 15,000 jobs a year will be created, with £85 million of business rates generated each year. ‘It’s going to be something which is well beyond expectations’, said Murphy. It will not, however, be affected by ‘lights-out London’, he added.

The conference also heard from Oxford Properties UK managing director Richard Pilkington, who said that joint ventures such as the one Oxford has successfully struck with British Land over the Leadenhall Building are a smart way to enter markets, but rely on honesty, alignment and respect as well as picking the right investments and Mark Smith, partner and head of real estate at Speechly Bircham, who forecast that there were far more ‘unconventional’ deals struck now than even three years ago and warned that investors must think about strategy, credentials and adopt clear decision making. Finally, there was a double-act from ABP London executive director John Miu and Farrells’ Max Farrell. Speaking about the plans they have for the Royal Albert Dock, Miu said London was ‘a logical choice for Europe’ and that the east will see ‘huge, significant investment’ coupled with the extra accessibility promised by Crossrail. ‘We believe London is one of the most business-friendly cities in the world’, said Miu. Farrell, meanwhile, said the scheme – the biggest private investment in Europe to date – was aimed at meeting the ‘huge amount of potential activity in the docks’. The masterplan is based on a geometric grid with long east-west routes, a promenade opening up 1km of waterfront, a central spine high street and an ecological corridor along the north of the site as well as eight new squares. ‘The architectural strategy is to create diversity’, said Farrell; ‘to create a rich and diverse place. What we’re creating is more of London.’

David Taylor, Editor, New London Quarterly

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