Apr 12, 2017
There are certain cities in the world where the cost of housing is so high it becomes something of an urban legend. These include Tokyo, New York and, of course, London. It’s easy to see what these cities have in common. They are all economic hubs, both globally and in their regions as well as their countries and hence have huge populations relative to their size, leading to high demand for property of all kinds, particularly residential property - and we all know about the laws of supply and demand.
Sterling’s weakness has made London more affordable to international investors
International investors often look at the whole world as being their market, which means that they will look at similar cities, such as Tokyo, New York and London, to see which one offers the best value to them. London is now in a very unusual position. On the one hand, it is just as attractive as it has always been from a property investment perspective, since the rumours of Brexit leading to death and destruction have, so far, proved essentially unfounded. On the other hand, property prices have just dropped, in real terms, for international investors.
As any investor knows, value purchases are excellent buying opportunities and hence it should come as no surprise to see international investors, particularly those from Asia (and especially China) being very busy in the London market. The most high profile example of this was the recent sale of the “Cheesegrater” to a Chinese businessman for £1B, making it the second highest-value sale of a UK building since records began. European investors are also still very much active in the market. For example, in 2016 the Norwegian government bought £400 million of property on London's Oxford Street, via its Global Government Pension Fund, one of the biggest sovereign wealth funds in the world by assets under management.
London prices move away from New York and towards Paris
In Q1 2016 (when most pollsters still assumed that the only feasible outcome of the referendum was remain), London was the most expensive world-class city in terms of the cost of office space and residential property, according to data from Savills, an international real-estate advisor. With the devaluation of Sterling in the wake of the referendum, London property investment has become much more affordable when compared to New York and Hong Kong and now has prices which are more in line with Paris and Tokyo. Of course, London is still the most expensive city in Europe, with close neighbour Dublin, for example, offering massively more affordability in spite of the fact that their own property market has been lively, especially in the rental sector. Even major German cities such as Berlin, Frankfurt and Munich can offer lower property prices than London.
The problem for these cities, however, is that successful businesses understand the difference between cost and value and this is London’s big advantage. While its rivals can offer many of the same practical benefits in terms of infrastructure and some also offer very attractive talent pools, there is nowhere else in Europe, not even Ireland, which offers companies the same sort of flexibility as there is in the UK. In particular, the UK’s employment laws are massively better adapted to the reality of 21st century business than those of its European counterparts.