Who's next?

London will continue to attract overseas investment, but which nationalities will be making an impact in five years' time?

2 July 2014, words by Yolande Barnes

 

London is shaped by global forces, and the economic performance of countries around the world will play out in London’s real estate markets – though not always in an obvious way. Who will be making an impact on London in five years' time?

Before looking at which geographies might provide the biggest new sources of demand for London, it is worth noting that we detect a potential change in the nature of global investment in real estate generally. Where there has been a trend in recent years for new economies and emerging economies to produce investors eager for capital growth and/or the ‘storage’ of wealth in safe haven assets, we are detecting new motives at work.

Many of those motivated by ‘safe haven’ capital storage and growth have become landlords in ‘old world’ cities around the planet, including London. We anticipate there will continue to be an influx of landlords but they will increasingly be motivated by income returns rather than capital growth. This means they will be attracted to higher-yielding second tier cities and secondary locations in Greater London than they have been in the past.

Prime assets in heavily-invested world cities have become fully-valued – and are beginning to be perceived as such – so the prospects for capital growth have abated. Also, investors themselves have become fully invested in such assets and are now looking for alternatives. These alternative assets may be prime properties in other world cities where further capital growth is anticipated. Other opportunities may be foreseen in second-tier UK cities and prime country property so that the emphasis comes off London.

With regard to newcomers in London, there will still be wealth generated around the globe that continues to seek a safe haven so this type of purchaser activity will not disappear entirely. Prime London will continue to remain a major recipient of this type of investment even though cheap currency is ceasing to be such a motivator.

Major players

Looking at the economic performance of overseas economies can be a good indicator of potential outward investment because strong economies can mean more discretionary wealth for investment. However, strong-growth markets at home may mean prospective London buyers stay put to reap greater rewards from domestic housing. On the other hand, weak economies may result in more migrants to London in search of better opportunities, and in turn a place to live.

Overall, we expect continued demand for London housing in mainstream and prime family markets due to inward migration from both the UK and overseas. While remaining important, we expect slightly lower levels of prime and ultra-prime purchaser activity from overseas. There are already signs that prices in these sectors have reached a high plateau where we anticipate they will remain for a while. Meanwhile, there is opportunity for yield-seeking investors in outer London.

Table 6.1 below shows which countries are forecast to generate the largest amounts of wealth in the next five years. Some, like Brazil, may also see an increasing propensity for overseas real estate investment (which is currently low and largely confined to the USA at present) which could benefit London. Others, like Hong Kong and Singapore, may show a decreasing appetite for London. Already, the mainland Chinese and Malaysians are becoming more active, while the Philippines, Nigeria and Indonesia remain on the radar but haven’t been major players yet. 


Table 6.1

It should be noted that many of these nationalities, even private wealth, may continue to prefer investment in land and development companies rather than residences. In this case, we may see increased development funding and corporate backing for market and other rental buildings rather than prime home buying.

 
 

Key Contacts

Yolande Barnes

Yolande Barnes

Director
World Research

Savills Margaret Street

+44 (0) 20 7409 8899

 

Paul Tostevin

Paul Tostevin

Associate Director
World Research

Savills Margaret Street

+44 (0) 20 7016 3883

 

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