London Investment Heads For Worst Year Since 2011 As Brexit Delayed And General Election Looms

Anyone hoping for a bit of clarity that would provide a fourth quarter boost to the Central London investment market is likely to be disappointed. The UK capital is on track for its worst year since 2011.

The decision to further delay the date of the UK’s potential exit from the European Union, combined with a potentially seismic general election, means the stagnation in London investment is set to continue until at least 2020.

Central London investment is likely to hover around £11B for the full year 2019, Savills told Bisnow. That would represent a 44% drop on the £19.7B invested in 2018, and the lowest annual total since 2011.

With about £8B invested in the first three quarters of 2019, that would imply a final quarter figure of about £3B, compared to more than £4B in the final quarter of 2018, Savills said.

“While the latest Brexit delay is unhelpful inasmuch as it fuels short-term investor anxiety, the fundamentals of the London market remain solid,” Savills Head of Central London Investment Stephen Down said. “This year investment volumes have been down primarily as a result of the lack of product. Potential sellers are choosing to hold assets for longer and this has created a bottleneck scenario substantially reducing the amount of tradeable stock coming to the market. While there’s a significant weight of capital targeting London, largely driven by low currency rates and more attractive returns than offered by competing European and global markets, the lack of stock will continue to impact activity.”

Since the start of the year, there has been one mantra for the Central London investment market: Investors are holding back until they know the outcome of Brexit talks, and once there is certainty on that key topic, money will come pouring back in. That was the message at Mipim ahead of the original Brexit deadline of 31 March, and throughout the year in the run-up to the revised deadline of 31 October.

“Any sort of a deal would mean a huge relief rally, and capital that has been waiting on the sidelines coming flooding back in,” M7 Chairman Richard Croft told Bisnow earlier this month before the new deadline of 31 January 2020 was agreed. “Sterling would still be cheap on a historic basis and there would be a lot of foreign capital happy to invest in that relief rally.”

In spite of the perception that investors won’t jump into the market while the UK’s political future remains unresolved, there are still some significant assets on the market and deals close to completion. Vendors will be hoping that uncertainty does not lead to deals being iced.

In the City of London, Blackstone has put Alban Gate up for sale for about £300M, a building owned by its core-plus platform, according to React News. Elsewhere, Brookfield is in talks to buy the 50% stake it does not already own of London Wall Place from Oxford Properties for about £350M.

In the West End, Oxford Properties and Brockton Capital are selling the Post Building for around £700M following significant inbound interest, and the WELPUT fund has put Orion House in Covent Garden up for sale for £130M.

Slightly further west in Victoria, Singaporean investor ARA is in talks to buy a 50% stake in the Nova office scheme from CPPIB for £450M. It would be the company’s first deal since buying UK asset manager Dunedin.

Outside of London’s central borough’s there are two huge deals on the market: the £700M sale of White City Place and the potential £1.3B sale of Camden Market, very different collections of assets, but both of which will test investor appetite for emerging locations.

Outside of the office world, Queensgate Investments is testing appetite for London hotels with the sale of the Kensington Forum Holiday Inn for £500M. Queesngate bought the hotel for £400M in 2015. There is planning permission to demolish the building and build a new hotel including serviced apartments.

News that there will be a general election before the end of the year will likely further increase investor reticence about Central London. The UK electorate is being offered perhaps the most polarised options for decades: a choice between a Conservative party that would deregulate the economy to the greatest degree since Margaret Thatcher’s government of the 1980s, or a Jeremy Corbyn Labour government that has indicated a programme of state intervention and redistribution of wealth which would radically alter the UK economy.

“Real estate would be fair game,” Prestbury Chairman Nick Leslau told Bisnow earlier this month. “[Corbyn] would be happy to dismantle the industry. Taxation would rise, he would expropriate land, impose rent control and reduce security of tenure.”

Opinion polls are generally in agreement and indicate that the Conservatives would win, but the margin of victory is far from certain. With such a stark choice on offer, there is even less incentive for investors to dive in before the result is known.

Or of course, there is the possibility of a hung Parliament, no majority for either party and further political paralysis. In which case, 2020 could be another slow year for Central London investment.