Much has changed in the last 20 years in UK commercial property. It has become more transparent and more global; it boasts new sectors and a growing array of listed and unlisted funds; new debt instruments have emerged; and derivatives are becoming an established property investment tool. Yet the last three years have reminded us that it is also a volatile market. With hindsight, the correction was inevitable but the vast global reach and synchronized downturn of the financial and property markets took us all by surprise. So… what next for the UK property market? Will it retain its status as a premier real estate market or will growing Asian markets see its prominence decline? Fittingly, the great and good of the UK property industry gathered in Brighton for the 20th annual IPD/IPF UK property investment conference last week. I was there and can give a few thoughts as to the tone of the moment.
One thing that dominated conversation was the shift from West to East. The pace of growth in India and China are staggering and the scale of these emerging markets and their increasing relevance will clearly impact on the UK. New financial centres will continue to expand, attracting multinationals and diverting capital away from the traditional powerhouses of New York and London. At the same time, superior returns and improving transparency are making these markets more attractive for international investors. An informal survey among attendees in Brighton confirmed it: 84% believe global investors will increase their allocations to Asia-Pacific, compared to only 8% for the Americas and London.
I strongly believe, however, that London will continue to be a focus of international investors looking to preserve wealth by buying trophy assets as the scarcity of product creates exclusivity and drives investment and returns. Furthermore, despite short-term fiscal consolidation, there are fundamental long-term drivers supporting, in particular, the competitiveness of London’s financial sector. Consequently, the UK will remain an important real estate market, despite inevitably losing its status as one of the dominant markets globally.
I’m hoping that the sunny weather and calm seas in Brighton as well as the record attendance at the conference forebode a bright outlook for the UK commercial property market, despite the inevitable setbacks along the way.