INVESTMENT OUTPACES 2014 BUT LONDON’S TOP PROPERTY PROFESSIONALS BELIEVE BEST IS YET TO COME
Almost half of London’s top property professionals believe investment into London offices will top 2014’s high by the end of this year, despite investment volumes falling 17% in Q3 to £3.8bn, the total for the first three quarters is £200m ahead of the pace set last year.
46% of the 200 property elite surveyed at CBRE’s ‘Booming London: How Long Will it Last?’ event yesterday morning forecast a flurry of activity in the last quarter of the year, and expect 2015 to represent the peak of investment turnover in the capital. One in five (21%) think 2016 will be the strongest year for investment inflows, with a further 10% believing investment will continue to climb into 2017 and beyond.
Driving this investment, CBRE, the global real estate consultancy, forecasts that prime yields in London City will remain at 4% in 12 months’ time, an opinion echoed by over half (52%) of those in attendance. A third (31%) see investment prospects moderating slightly next year, forecasting a 0.5% rise in yields, while 16% believe yields still have further to fall.
Yields are influenced by a wide range of factors, but interest rates play an important role. Asked when the Bank of England will start to raise rates, over half (55%) of the attending property professionals expect them to remain at 0.5% until the second half of 2016, while a further quarter don’t anticipate a rise until 2017. Fewer than one in five (17%) expect rates will rise in the first half of next year.
London offices have gone from strength to strength, so it’s only natural to start asking how long this boom can last. At present however, there’s no sign that 2016 will be anything like 2007: economic growth appears sustainable, interest rates are set to increase slowly when they finally do, and yields will likely only creep up gradually from the end of 2016.
London’s financial and property markets are right to be nervous about the implications of a slowdown in emerging markets, fears of a Brexit and concerns about the level of supply, but there are reasons to be both fearful and cheerful. As our panel of experts observed at the event yesterday, London’s population is expanding strongly after several decades of decline, and the growth of burgeoning creative industries will continue to drive demand. Furthermore, the development pipeline isn’t threatening over-supply in the near term. Overall London’s safe haven status will continue to attract capital from overseas investors, which will soon rebound from a recent slowdown to grow in the medium to long term.