The question being asked is, ‘during the worst financial crisis in living memory, why has the commercial property investment market within London, remained so robust’.
Of course there are many factors which are unique to this well established and respected market.
1. London is considered a stable and safe environment from a political stand point. The institutions are trusted, which weighs heavily on the thoughts on investors. Some of capital flows into the London market originate out of different overseas territories and less well regulated situations. London is a safe and attractive place to invest. It is also considered a tax haven for offshore investors.
2. Access to London from any major city or province of the world is probably easier than any other destination.
3. The time zone is favourable in relation to the rest of the world, as London operate on Greenwich Mean Time.
4. There is full transparency in commercial property transactions. All transfers are recorded on the Land Registry database and this is accessible by all.
5. There are well established world class property professional teams and agents to assist in purchase, management and disposal of assets.
6. The City has the skill set to provide financial structures such as securitization, bond issues and mezzanine finance products to meet the needs of complex deals and transactions.
7. The market was considered to be cheap. This arose out of a general lack of confidence in the property sector as a whole, following the banking crises and subsequent restriction of finance in the local market.
8. The dear old Pound Sterling was stealthily devalued by the authorities. The U.K. made sure they enacted this plan first. We have since seen a round of competitive devaluation around the world. Devaluation of the pound has always been used as the ‘get out of jail card’ for Britain.
The commercial property investment market is therefore attractive to overseas investors. They have filled any lack of appetite or ability from the UK sector. Falls seen in prime well located stock since early 2008, have on the whole, recovered. Evidence in the sector suggests we are about to surpass 2008 index levels within London prime investment market.
Other important factors are inflation and currency gains. The commercial property sector loves inflation! Diminishing the real cost of debt finance, whilst bolstering property values. Once the pound strengthens again, there are real gains to be made on the currency swing, buying back more roubles and petro dollars for the canny overseas investor. Look for a negative change in sentiment if this particular scenario comes to pass.
