London set to benefit further from bad news elsewhere in the world

Bad news in the rest of the world is good news for London real estate and the UK capital’s reputation as a safe haven for foreign investors is set to be further strengthened this year by problems elsewhere, according to Stephen Down, head of International Investment at Savills.

Whether it is rising geopolitical tensions in the Middle East or market turmoil in China, investors in those places have an added incentive to diversify and turn their attention to London, he told PropertyEU.

‘Nervousness about Chinese performance and concerns over the oil price and regional rivalries in the Middle East are all the more reason for investing abroad and particularly in London,’ he says in an interview with PropertyEU. ‘In fact there is more Middle Eastern money out there than I have ever seen before.’

The last six months of 2015 did see a slowdown in transactions in London, but reports of a crisis have been greatly exaggerated. ‘Some sales by big players like Blackstone in the second half of the year were interpreted as panic selling, while in fact it was just profit-taking,’ said Down. The biggest sellers in 2015 were British institutions out to maximise their profits.

After two consecutive years of £20bn turnover in 2013 and 2014, last year ended somewhat weaker at around £19.5bn but that can hardly be described as a dramatic fall. ‘Some deals did fall out of bed, but because they were badly managed acquisitions, and there are lessons that should be taken on board,’ he said. ‘Maybe the degree of hunger has changed, but market sentiment remains positive. The fundamentals are strong and the market is undersupplied.’

The problem of lack of supply is unlikely to be overcome any time soon, said Down: ‘There is only a handful of development sites and no sites for sale. Less activity, less speculation and more caution are the characteristics of the post-Lehman market.’ Pricing has become more important and even the biggest investors want to see value.

There will be more sales this year – Down’s prediction is that Malaysians and other early entrants to the market who bought in 2011/2012 may opt for profit-taking in 2016 – but there will be plenty of other overseas buyers ready to pounce.

A flurry of Chinese investments in the UK market was sparked by president Xi Jinping’s official state visit last October, with many scrambling to close deals by the end of 2015. ‘But there is a lot of unsatisfied appetite there, and they will be back this year,’ says Down.

2016 is also likely to see a resurgence of American investors’ interest in London, says Down: ‘Some large US investors have been bidding and the stronger dollar will make them more aggressive this year.’

Nicol Dynes
London correspondent