Why London?
There are 12 key reasons London is more attractive to international capital than other markets. The “why London” mantra has been well rehearsed but understanding these divers is crucial.
1. Global Financial Centre
London’s position as a top financial centre brings with it real estate that is fit for pupose with global occupiers and strong covenants. While its exposure to financial and business services increases market volatility, its top ranking, which is not taken for granted, undoubtedly channels global capital.
2. Liquidity
Even in the worst markets conditions there is an exit strategy. There is always a buyer for good stock.
3. Stock
London is the second biggest market in Europe and with a stock replacement rate of around 2.7% per year in London City, for instance, there are options of quality stock on new leases to high calibre tenants- or opportunities to inject development funding.
4. Lease lengths
The institutional nature of UK real estate and London offices in particular, has created an investment market geared to the investor. Longer leases than the rest of the UK, typically, and on a FRI “triple net” basis ensure a physical asset can be as “bond like” as possible with guaranteed minimum fixed income over the term of the lease, and in many cases secured on better product than in other global markets.
5. Tenure
The guarantee of title may be taken for granted by domestic investors but it is not by overseas investors. Freehold is most desired but more experienced overseas investors are increasingly embracing the leasehold structure of London office real estate.
6. Transparency
Independent research, data and industry scrutiny from the press, advisors and equity analysts all serve to create a very transparent and relatively easy to understand market. The Jones Lang Lasalle Transparency index ranks the UK as the 3rd most transparent real estate market globally
7. Professional advice
The law firms and surveying practices operating in London often come with a platform which enables a consistent level of advice across the globe. In such competitive market it also gives comfort that there is no monopolistic practice.
8. Tax
UK Investment offers an investor an investor friendly regulatory framework and tax regime to overseas investors with no barriers to real estate ownership and the transfer of funds in and out of the country.
9. Currency
The devaluation of sterling has made the price of real estate even more competitive and investing out of “riskier” currencies into sterling is a contemporary defensive play.
10. Familiarity
A “soft” factor maybe, but a very important one. Investors naturally prefer to invest in areas in which they are familiar. In London this has sometimes rather patronisingly been described as a “monopoly board mentality” but in reality it derives from investors already having strong cultural links with London as well as a working knowledge of assets and strategy either directly or from contemporaries.
11. Schooling and education
For high net worth investors, schooling of relatives has provided familiarity and an opportunity to purchase residential property. This fosters an understanding of London real estate practice which migrates into the commercial sector. The escalation in tuition fees has already driven more overseas students into our universities at the expense of domestic students. According to UCAS there were 1.8 million full time undergraduate students in higher education last year, of which over 104,000 were international.
12. Cultural and language
Multi cultural London, quality of life and the English language make London an attractive place in which to invest capital and work.
Capital growth in London Central has averaged over 8% p.a. over the last 15 years, even taking into account the short downturn during the credit crunch. This represents a doubling of value every 9 years.
Gross annual rental returns are in the region of 4.5%, taking rent vs. capital expenditure (purchase price and renovation costs)
Growing international demand and the shortage of stock (there are only about 100 transactions a week) continues to underpin price growth.