Bruce Dear, head of London real estate at Eversheds, has commented following the news that commercial property investment in London has hit a six-year high.
He said: ‘The reasons for central London’s inward investment boom are not located in London, but in the countries where the money is born. The Middle and Far Eastern sovereign wealth funds hold unimaginably vast surpluses.’
Dear added that it is the current unpredictability of the global bonds and equities markets that are leading to increased investment in London’s commercial property, as sovereign wealth funds look to diversify their investments.
‘London property is an attractive answer to their problem. Sterling’s weakness means profit on entry. Prices are still below the 2005–06 peak and UK interest rates are at a 320-year low. UK law allows structures that hugely reduce capital and income taxes. Within this framework, a relatively modest [in the world of sovereign wealth funds] capital allocation will secure multiple grade-A blue-chip tenanted buildings. These provide steady income in unstable times, a reasonable inflationary hedge and useful diversification.’
According to Dear, London cannot be complacent as the city’s current attractiveness is not a new phenomenon. ‘London went through a similar cycle in the late 1980s. Between 1988 and 1990, the Swedes and Japanese poured £2.3bn and £3.2bn respectively into UK property – 80 per cent of it into London. Then the government raised interest rates to counter inflation. Between the end of 1989 and 1992, central London’s capital value index halved. The Swedes and Japanese sold up and went home.’
Dear said he believes success can only be sustained through a smart tax and regulatory regime and infrastructure investment and by consistently bettering the global competition that comes from other gateway cities.