Large investors with a long-term horizon, described as big beasts during MIPIM UK, will continue to put capital into real estate in London, which is unlikely to be replaced as Europe's leading financial centre anytime soon. But opportunistic funds, sometimes unkindly dubbed vultures, might avoid the UK capital in the near future.
Property experts gathered at MIPIM UK this week acknowledged the problems following Brexit, but overall they were in upbeat mood.
'Short to medium investors might find it hard to make investment decisions in this period of uncertainty,’ said Asli Ball, senior vice president of Singapore's GIC Real Estate, one of the world's biggest property investors. 'But for those like us who have long term-horizons there are many interesting buying opportunities. Our strategy is to prepare for different scenarios, rather than try to predict the future.'
All the positive things about the UK that foreign investors value, such as depth of the market, transparency, a good business environment and transparency have not changed after the referendum, Ball said. There is some concern about prospects for City offices if the UK loses financial passporting rights, she acknowledged, but it is important to realise that 'a financial centre of London's magnitude cannot be created overnight and cannot be destroyed overnight.'
Guy Hands, chairman and CIO of Terra Firma, one of the Europe's largest private equity firms, made the same point. 'People should take a long-term view,' he said. 'One of the big mistakes the Europeans are making is to believe that they can somehow take the financial services business out of London and plonk it in Frankfurt, Paris or Amsterdam. There is no way Paris or Frankfurt will replace London in my lifetime or my children’s lifetime.'
The UK is facing at least two years of negotiations with the EU, which means a long period of doubt and confusion before the outcome is revealed. Investors have to realise that ‘uncertainty is the new normal’ and adapt to a different climate, said John Slade, UK CEO of BNP Paribas Real Estate. 'The paralyzing fear of Brexit before the vote was actually worse than the aftermath,’ he added. ‘London has undoubtedly been hit, investments are down 60% on last year, but activity has come back now and I feel bullish.'
Even in the office market, considered most at risk, 'demand is holding up better than expected and, as London is not oversupplied, it will not dry up overnight. And prime yields are 4.5% in London compared to a maximum of 3.5% in Frankfurt or Munich.'
Other sectors are more attractive post-Brexit, said Ball: ‘Prime high street retail in London has been booming because of the weakness of sterling. Investors should look at the big picture, examine all sectors and determine what is likely to work.’
Opportunistic funds, which normally thrive on volatility, are currently staying away from London, in the expectation that the pound will fall further. Another reason for their wait and see attitude, said Slade, is that 'hedge funds now see an opportunity to get in but they are not sure they would be able to exit quickly. This is a big deterrent for them.'
