London: UK property
Anticipating the future is the key to staying competitive in the London market
Brexit was widely perceived as a vote against London’s dominance and, in the immediate-term, expected to have a deleterious effect on the market, as investors digested the ramifications for the city’s dominant financial and business services employers.
However, up until now, the market has remained tight, with few motivated sellers contemplating anything representing a discount to pre-Brexit pricing. Those seeking to take advantage in the advent of a correction have thus far remained disappointed. Furthermore, strong take-up of space in London by the tech giants has hinted at a more balanced economy in the future.
For those investors wishing to enter the market, and with return expectations above the 3-4% p.a. mark, this situation represents a challenge; but not an insurmountable one.
In looking to identify assets and locations with the potential to outperform, investors should consider what the future characteristics of outperformance will be – and seek them out. For our part we would break it down to transport connectivity, internet connectivity; the urban realm (or placemaking) and buildings with the potential to offer occupiers an asset that plays an active part in driving their business forward in the future.
For example, all of central London has strong public transport connectivity, but some areas are far better connected than others. With occupiers giving increasing consideration to optimising their employees’ journey to the office, locations’ connectivity will not simply be judged on the availability of a tube or train station within walking distance, but rather the range of stations within walking distance and the level and diversity of onwards connectivity provided. On this measure, notable variance in the quality of locations across London starts to emerge.
Looking at the physical assets themselves, there is a very gradual shift occurring in how occupiers view space and its contribution to employee happiness and productivity – with increasing evidence now available to support the workplace-productivity link. Careful consideration is now needed; not only of an assets’ suitability for today’s occupier, but the costs involved in adapting the asset to tomorrow’s more demanding one. Something particularly of importance when engaging in value-add activities with assets that may not be easily adapted to future needs.
More prosaically, preparedness is key. Any due diligence that can be done in advance of an acquisition will smooth the process, and give investors an edge. For example, market due diligence (even at the submarket level) can and should be done in advance. The more time that can be spent on asset specific issues the better. Property remains a complicated asset, with each acquisition posing specific challenges (and risks). The ‘devil is in the detail’ and it is on the detail that investors should focus.
This article was published in the Estates Gazette London Investor Guide, Autumn 2017.