With the latest reports suggesting that one in every 30 Londoners is COVID-19 positive, the situation seems to be getting dire. Mayor Sadiq Khan has even gone on record to say that the virus’s spread is “out of control” at a time when Britain has moved to the top of the European charts in the number of deaths category.
Another problem weighing on London is the impact of Brexit on the city’s real estate markets. Despite Boris Johnson inking an 11th-hour agreement to avoid what seemed to be an imminent no-deal Brexit, many companies in the capital have already picked up their bankers’ boxes and are headed for the door. It is largely because many financial firms may not be able to offer services across the EU if they continue to operate out of London.
This, coupled with low economic output and a forced shift towards home-working, has landed a major blow to the property owners in the central business districts. At 60% year-on-year decline in leasing activity, London saw its worst three quarters in 2020.
However, in what comes as a significant boost to the market sentiment, Asian buyers seem interested in acquiring prime rental spaces in London. Many of the big deals from last year involved new entrants in Britain who hailed from Asia. For instance, The Cabot, a sprawling office complex in the Canary Wharf, was bought by Hong Kong’s Link Reit for £380 million.
The writing on the wall is clear for investment markets – no one can pass an opportunity to get hold of a premium property that gives a rental yield of nearly 5%. On the other hand, concerns like COVID-19 and Brexit are overshadowing everything else in the occupier spectrum of the market. It remains to be seen if employers are willing to stay put in a place where most workers commute via train or tube.
While we cannot ignore the possibility of seeing a bifurcated market in the post-pandemic world, space sellers or lessors need to cater to the ‘new normal.’ Offices that ensure the well-being of the occupants and those closer to transport hubs are likely to gain a lot from this shift in preferences. With this as a thumb rule, Singapore’s Sun Venture purchased the five-year-old 1 & 2 New Ludgate for £552 million in what was the biggest acquisition of the year.
Asian investors are willing to hedge their bets to target trophy assets while giving themselves an opportunity to move out of relatively smaller markets. Sun Venture’s chairman, Ricky Au, calls this a “window of opportunity” to get the best deal for his firm.
A decade ago, Chinese and Hong Kong led the charge when it came to investments from Asia, and now Singapore and South Korean firms are upping the ante. If experts are to be believed, along with low-interest rates and a promise of better returns, there is also a prestige factor involved for Asians in owning a small piece of London.
Whether London will retain its tag as the financial hub of Europe or not remains to be seen, but until then, hopes will be pinned on Asian investors to resuscitate the city’s real estate.
Source: SCMP
