2nd August 2018
“Overseas buyers are back in town. There may be little movement in rental growth (on track to go sideways in the City at about 4 per cent) but Hong Kong tycoon Li Ka-shing’s £1bn office real estate deal has the market excited once again. One Chinese lawyer called him a Pied Piper, sure to encourage other buyers to follow where he leads.” The Closing remarks to the Financial Times’ Elain Moore’s: ‘Letter from London: Property is bunk’, whilst not cause for celebration do leave room for a little optimism. With the UK’s population expected to grow to 72.9m by 2041, Office Real Estate continues to be the conservative investor’s choice. Whilst the backdrop uncertainty of Brexit remains alongside a potential US/China trade war, rising inflation suggests that property yields may continue to be under pressure. This, coupled with the arbitrage between UK Gilts and property yields indicating at an irrationally wide gap of 4.6% compared to the average of around 2.5%, may lead investors to follow Li Ka-shing in focusing on tangible assets.
Constant monitoring of the market and wider MACRO economic factors gives us the opportunity to continue to review our 5 year strategy. Despite challenging Office and Industrial investment markets with strong pricing, and increasing competition from UK funds, charities and overseas investors maximising on the weak GBP, we continue to work towards targets set last year: keeping borrowings conservative with a max LTV of 25% and focusing on tight occupational markets where supply is low and demand is strong. We remain vigilant to ongoing political and economic issues affecting the property marketing whilst looking forward and continuing to acquire selective assets that meet our criteria and fundamentals test.