Real Estate update for city of London

06 May 2014

Mark Field, MP for the Cities of London and Westminster sponsored a breakfast seminar, hosted by JLT European Real Estate and chaired by Bill Gloyn, for the City Property Association at the House of Commons on Thursday 1st May 2014.

Mark Field, Member of Parliament gave a fascinating overview of the current political landscape. Whilst believing that the Coalition is likely to last until the next Election, it could become under threat should the Liberal Democrats lose a significant number of their European seats which leads to a leadership challenge. On UKIP and Europe, Mark believes that they will do well in the Euro elections, but remains convinced that Britain must stay in the EU. On the Scottish Referendum, Mark’s view is that politicians should be using a softer approach, rather than the threats and bullying employed by some!

Mark considers that whichever party wins the General Election will have a big challenge ahead and believes the continued racking up of a huge amount of debt, coupled with low interest rates, is unsustainable.On property matters, Mark said that he was proud of the terrific amount of capital still coming into London, with the City remaining an important magnet for international investors. 

Jon Zehner, Global Head of Capital Markets - LaSalle Investment Management gave an interesting insight into the economic climate. Clearly, there is both ‘good news’, in that the inter-bank market is working well; a Euro break-up appears to have been averted and borrowing is coming down, and ‘bad news’, in that the deflation risk remains; the EU banking system remains a real risk and unemployment rates are still an issue. However, undoing Quantitative Easing without causing significant damage is a real challenge.

On real estate investment, LaSalle’s view is that capital yields are likely to disappear within three years and he highlighted the following action investors are typically taking: -

  • Consolidating and ‘clubbing’ together; 
  • Decreasing the number of managers; 
  • Moving to value-added opportunistic funds.

Many investors are increasing their exposure to real estate in order to re-balance, with $68 billion raised globally during 2013, an increasing percentage of which was invested outside of their home markets.

Summing up, Jon gave the following tips on what property investors should concentrate on: 
  • Location; 
  • Demographic trends; 
  • Technology focus; 
  • Don’t let leverage get too high!

Barry Gilbertson, Property Consultant focussed on market drivers, the importance of real estate and risk awareness. 

As far as complex market drivers are concerned, these include:

  • The economy – including local micro economies; 
  • Debt finance – loan to value ratios reducing from 90% to around 70% means borrowers need to tie up much more of their cash; 
  • Location is still critical and all drive occupier demand.
In terms of the relevance of property, Barry highlighted 3 key stages: -
  • Get some demand that may shift yield; 
  • Rental increases seen; 
  • Capital growth achieved. 

Barry quoted The World Bank which says that 70% of the World’s wealth is in real estate but that this creates 60% of global emissions. The total value of UK real estate is believed to be £5 trillion, although only 12% of that is commercial property. Cross border investment totals $450 billion worldwide, with the UK continuing to be a major beneficiary. 

Stressing that risk management is key, every business should look at the following risk categories: 

  • Systemic – e.g. should the Euro collapse; 
  • Actual – which can be mitigated; 
  • Imagined – some of which can be mitigated, controlled or insured.

Barry finished by saying that real estate, underpinned by occupier demand, is critical to the success of the economy.  Rob Samuel, President-Elect of the CPA concluded the event by thanking the speakers for their hugely informative and entertaining insights.  

For further information, please contact Terence Edwards, Partner, Real Estate on +44 (0)20 7528 4237

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