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Brookfield Is Still Bullish On London, Others Take A Bearish View

Clockwise from top left: M7's Richard Croft, Fried Frank's Patrick Williams, Brookfield's Zach Vaughan and Oxford Properties' Jo McNamara

London’s investment market has come back much more slowly than other large European investment destinations like Paris or Germany’s major markets. How do global investors see the UK capital shaping up in a world altered by the coronavirus pandemic?

Three international investors outlined their scenarios for London in the immediate and longer term at Bisnow’s London State of the Market digital summit last week, all expressing nuanced degrees of confidence, from the super bullish to the more reticent. In a panel moderated by Fried Frank partner Patrick Williams, here is what they said. 

The bull: Brookfield Managing Partner For Europe Zach Vaughan

“I don’t disagree that there will be growth in the regions, but I just don’t believe that the smaller cities in the UK will compete in terms of being places where the young, talented workforce wants to be long term. That is a unique aspect of the UK, and why London is such a global market. And while the market is a bit slower now, partly because of the travel restrictions, it will certainly come back.

“Pricing really depends on the sector and the asset. If you have a very core asset in London, there is still a market for it. Our belief for a long time is that London has been very attractive on a relative basis [to other large cities] and we’ve made a big push to acquire more in London relative to other markets, and we still think that’s the case. I think increasingly we’re going to see that once people can travel and see assets and get comfortable with them, London is a market where people will want to own. We’ve adjusted some of our underwriting on lease rates and velocity near term, but certainly long term we’re very bullish on London. 

“I think yields will actually come down for certain assets. Put some assets aside — like retail in the UK where you need to restructure the lease structure, but once that’s sorted those will again become institutional and be sought after, once that has taken place. But if you think about large, institutional global capital, it is continuing to increase the amount of real assets and alternatives it wants in its portfolio. And we’re not talking billions, we’re talking trillions. And that capital has to go somewhere, and it will continue not to go to the global, transparent, liquid markets, of which London and the UK are certainly one.”

The more bearish: M7 Executive Chairman Richard Croft

“London has got to find its new place in the world, as every major city has, because there are going to be changes in the way cities are used. We think you will see more activity in the regions, and less in major cities, for several reasons. One is affordability. But one of the things I think the pandemic is going to change is the reliance on mass-transit commuting. The idea of us all coming in to the centre of the same place every morning and leaving every evening is going to be affected. Our prediction is that the big cities, not just London, are getting to the point of being ex growth, because the growth should come in smaller cities where there is more space and more affordability. London is just not affordable for people, so we think you are going to see more people working locally.” 

The cautiously positive: Oxford Properties Head of Europe Jo McNamara

“We feel it’s more of an interruption of a trend, so certainly for the next few years we think you have to underwrite your cash flows with negative growth, particularly for offices. But we do think that urbanisation as a theme will come back, and the reason we say that is just talent. Having talent in the right place working together, that need for collaboration and that need to be together. It’s great that we can all work from home remotely, but you do need to get everyone together to get that culture and to get people really innovating. 

“So we think urbanisation will come back as a theme, it’s been a trend for a long, long time, even though yes, there will be growth in other places. I’m not personally that sure about the hub and spoke model. I think people have proven that they can work from home, and therefore the hub will be really important and the spoke will be less important [as] people will be working from home. That will give people diverse ways of working, and that will hinder the spoke model people have been talking about.”