London looks set to remain the most popular location for international investment from across the globe, aided by supportive government bodies and a favourable development environment. But it faces challenges including finding projects large enough to satisfy demand from China and elsewhere, a raft of regulations creating ‘doubt and fear’, connectivity problems and competition from other cities.
Those were some of the key points to emerge in an NLA half-day conference on commercial investment in London last week, sponsored by the event host Charles Russell Speechlys.
The event was kicked off by JLL international capital group director Matthew Richards, who branded London a ‘country in its own right’ given the $45bn of commercial real estate transacted in the city in 2014. This, said Richards, is only beaten by the US and Germany, and is higher than the whole transactional volumes of Japan. ‘It is absolutely huge; said Richards, ‘but the key defining point is the variety of international capital’, with some 60% of those transactions coming from overseas and 70% when it is Central rather than Greater London. And while international investment was dominated in the past by one region at a time, such as the Nordics, then the Japanese and Germans, today the interesting factor is the sheer diversity of investors that are coming to London. There is a ‘healthy balance’ to the mix and nature of origin, with a big growth of Asian investors into the London market, and one of the reasons is the nature of global savings. China’s savings rate is expected to grow at 17% per annum, with India at 16% and Brazil at 14%. ‘The developing world is saving at a tremendous rate and that means more capital into different structures’ said Richards. In fact, it has been predicted that by 2022, some 40% of the world’s total savings will be held in China. The challenge for London is to find projects big enough to satisfy this demand, and the future will involve more marrying of equity and expertise. ‘There is a requirement to partner up’, said Richards.
This is where Agent partner David Partridge has valid experience, with ongoing work in Manchester with the city council on land opposite Piccadilly station, and the firm’s history in partnership to regenerate the King’s Cross site with LCR and other landowner DHL. The Manchester project shows how the council will work in partnership to get a £800-900,000 annual income and stake rather than a one-off cheque for £5m for the land. At King’s Cross, again, the process was a ‘creative’ one with a similar best-of-both-worlds outcome; progress when LCR needed it, and value when it had been created. This principle has allowed Argent to, in turn, give its BT pension scheme backers a rate of over 30% over 15 years, not including King’s Cross. Now, said Partridge, Argent is working at Brent Cross with Barnet, Tottenham Hale with Haringey and is talking to housing associations and other entities that are keen to unlock value from the land they hold, with cities on the radar including Birmingham and Bristol as well as Manchester and London. It is also working with the Related group of companies – behind the 15msqft Hudson Yards project in New York – to bring money and expertise to bear on the UK housing shortage. ‘We are going to be looking to build up a huge build to rent portfolio off the back of their platform and their expertise’ said Partridge.
The conference also heard from Huw Stephens, Head of UK Transactions at AXA Real Estate, who said that, although London’s infrastructure is ‘creaking’, the city’s centre of gravity is shifting eastwards and to fringe areas, with tenants wishing to be ‘centre of the action’ and able to indulge in amenities such as bars and restaurants close to work. Tomaš Jurdák, Managing Director, HB Reavis UK, provided the investor view, emphasizing his firm’s wish to be a long-term player, while Malcolm Dowden, Consultant, Charles Russell Speechlys, ran the rule over legal issues affecting investment decisions. Regulations coming into play over issues like climate change are creating ‘confusion, doubt and fear’ in the market, he said, and ‘crucial’ issues like connectivity problems particularly affecting small business had prompted the GLA to run a rating programme for buildings across the city. London’s legal market, so long a centre of excellence and pillar of the city is also changing, with advances being made in the sector in Singapore, Dubai and elsewhere, in an attempt to attract legal business away. ‘We must never forget that you can hear similar talks in other cities competing for global pre-eminence’, said Dowden.
David Taylor, Editor New London Quarterly