Property Market Outlook: Insights and Expectations with Richard Goldstein, Director ‑ Investment Department.
June 24, 2024
Richard Goldstein delves into the current state of the London property market, shedding light on investment strategies, market trends, and the challenges and opportunities anticipated post-election.
Enhancing Investment Strategies at Metrus
I joined Metrus after 23 years in commercial real estate in central London. In that time, I helped establishMichael Elliott Asia in Singapore to manage London investment for Hong Kong and Singapore. This venture enabled us to handle both sales and acquisitions, with Metrus managing the acquired properties. My role at Metrus focuses on expanding the investment arm and overseeing a £6 billion portfolio of London assets. This includes strategic advice on upgrading iconic buildings to meet new ESG standards, enhancing value, facilitating purchases and sales.
Market Challenges and Outlook: Navigating Interest Rate Dynamics
Rising interest rates have significantly impacted transaction volumes, leading many investors to adopt a wait-and-see approach. However, there is a growing consensus that rates may drop in the short term, potentially boosting market sentiment. I believe we are now near or at the market bottom. Quality investments, especially in prime locations like the West End, remain in demand despite market caution. While transactions in the City and fringe locations are slower, they are starting to pick up. Overall, sentiment is improving, especially in top-tier markets, indicating a positive shift in investor confidence.
Outlook for Second Half: Anticipated Rate Cuts and Increased Market Activity
I anticipate a busier second half of the year as interest rates potentially decline & inflation stabilises at the Government’s target rate. Currently, limited stock is available, with sellers waiting for post-summer conditions, especially after the general election. Activity typically increases from September to Christmas due to year-end considerations. If rate cuts happen, investor confidence and activity could surge. Despite recent challenges, there’s growing optimism in the occupational market, particularly for Grade A offices and prime retail. As inflation stabilises and rates adjust, economic conditions are expected to become more favourable for direct investment.
Private Investors Thrive Amid Cautious Institutional Malaise
Currently, private investors both domestic & international dominate the market, while institutional investors face funding challenges and focus on niche areas like student accommodation and long-term income assets. Property companies are interested but cautious due to pricing concerns. The current market primarily caters to private investors targeting prime West End locations like Mayfair, Marylebone, and St. James’s.
Confidence in Premium Retail Space
Dyson’s £70 million investment on Bond Street signals confidence in premium retail and market stability. Two months earlier, Blackstone re-entered the market with a prime purchase on Bond Street, indicating stabilisation. Bond Street thrives with record-setting lease rates, even attracting even fashion houses to own their stores. Oxford Street has also seen a resurgence in leasing, reducing vacancies and eliminating temporary occupiers. Despite adjusted rental rates, traditional retailers’ return post-COVID highlights the lasting appeal of physical shopping. JP Morgan’s rumoured purchase of a major retail asset on Europe’s busiest shopping street further underscores confidence in London’s prime destinations.
Thriving Office Market: Embracing Quality and Sustainability
The occupational side is thriving, driven by robust demand for top-tier spaces. Businesses are prioritising high-quality environments with amenities such as breakout areas, modern kitchens for collaboration, and end-of-journey facilities to attract employees back to offices. This trend is evident in new city constructions, mostly pre-leased well in advance, reflecting strong business commitment to employee well-being and ESG compliance. Owners of long-held buildings are repositioning them to meet modern tenant preferences, investing to ensure high occupancy and competitive rental rates. Tenants prioritise quality, seeking spaces that meet their high standards for comfort and sustainability. This trend shows the occupational market outpacing the investment market, a first in my 25-year career.
Quality Investments and Market Resilience
It’s fascinating how interconnected everything is. Property investment requires significant commitment and isn’t as liquid as buying shares. Major players’ purchases underline a preference for quality assets in prime locations, offering a safety net amid global uncertainties. Unlike offices, which can become obsolete due to changing trends, retail spaces are adaptable and tend to maintain value longer. Retail tenants often customise their spaces to fit their brand, benefiting landlords with lower maintenance costs and stable income streams.
Challenges and Optimism
The main challenge is the scarcity of sellers willing to accept current market conditions. Although there are buyers, finding suitable opportunities is challenging. Lower interest rates could stimulate more sales, but owners are reluctant to sell as long as rents are paid and assets maintained. We are currently at the market’s nadir, with values expected to rise in 2025, revitalising the market and stimulating both supply and demand. London, as a major financial centre, continues to attract investors due to its transparent market and established legal system. Political stability post-election will further bolster market confidence.