Is the current boom cycle in London and other parts of Europe nearing its end and should investors be taking profits? Columnist and author Peter Bill examines what the experts have been saying.
Is the current boom cycle in London and other parts of Europe nearing its end and should investors be taking profits? Columnist and author Peter Bill examines what the experts have been saying.
An old problem faces those selling assets in an emerging ‘beat the downturn’ sales rush, quietly gaining momentum in London. What do you do with the money? If the market is going to dip, selling is the right decision. If that’s the case, why buy risker assets with the returns? Surely the obligation is to return the money to shareholders or investors? Do that and the firm, or the fees, shrink. A conflict invariably resolved by a decision to re-invest. Where? Perversely, somewhere ‘up the risk curve’. A proposition founded upon the survival instinct, expressed as ‘trust us, we are clever enough to beat the market’. A proposition echoed last month in a Europe-wide survey conducted by Union Investment of 165 property companies and funds, of which 51 in the UK.
Reverse the report’s title, Searching for returns: real estate investors take profits, and you capture what’s going on – not just in the UK it appears. In London wise heads sense the cycle is entering the autumn of its life and now is the time to harvest profits. A note from analyst Mike Prew of US investment bank Jefferies called the top of the market last month, predicting a slowdown next year. You barely need to read between the lines of the Union survey to sense this ‘where to spend it now’ mood is spreading across Europe. Redact the bracketed text in their summary: ‘The top priority for many European investors over the next twelve months is to (identify market opportunities and take advantage of the increasing pressure to invest in order to) dispose of properties, either in individual transactions or on a larger scale as package deals.’
Thoughts that occurred in May to a successful mid-sized investment manager in London. A clever group of youngish characters who had made a fortune from buying UK offices in 2010 to 2013, then selling nearly the entire portfolio by early this year. We discussed their dilemma over a sandwich lunch and a few bottles of silky white wine in their offices. The chairman is a former chieftain at a global firm of agents. A man who had seen it all before. On the agenda, was, yes, ‘what to do with the money?’ Coming up with answers was a struggle. After a couple of bottles a conclusion was reached. Either ‘go up the risk curve’, or give investors back their money. My money says they will chose the latter. But what to buy? Read on...
Full English and foreign advice at Claridges
Knight Frank knows the way to a client’s heart. A full English breakfast was provided for 200 guests at Claridges on 17 September by European MD Chris Bell and co-host Andrew Sim, head of European capital markets. Sim began a 15-minute presentation with the words ‘the market is on fire,’ ending with ‘make hay while the sun shines.’ You get the tone. The sun is shining in Northern Europe, and peeking out in Spain. In Russia it’s midwinter, investment volumes have collapsed by 46% this year.
Those looking for haymaking opportunities should consult the 12,000-strong agent tout suite. Sim said values are ‘approaching 2007 levels’ and today feels a ‘bit like 2004/5’. His implicit warning: the sky may go dark in 2017/18. Meanwhile, don’t worry, transaction volumes are up across Europe by 29% in the first half of this year, to €105 bn. They are set to reach €230 bn for the whole year says Knight Frank, ‘the highest since 2007 peak.’ Yes, yes, we’ve got it, hurry hurry...
Andy from Aberdeen says...
Final word on why sell in London and where else to buy from Andy Allen, head of research at Aberdeen Asset Management. ‘Someone we had never heard of from Asia bid twice the price we would have been prepared to pay the other week,’ he said last month. ‘They just go out and buy the shiniest office block they can find.’ What’s Andy’s advice? He pings over Aberdeen’s latest research note. Don’t invest in offices, but in retail, industrial and residential. Then only in a list of 80 global ‘winning cities.’ Places whose positions in Aberdeen’s table are based on projections of growth in population and prosperity. Topping the table? London. There is no getting away from the dammed place.
Peter Bill is author of Planet Property and former editor of Estates Gazette