Consulco recently hosted its second real estate conference aiming to inform the Russian investor base, presented by Ramaz Chiaureli of Kommersant FM and attended by an impressive number of investors and investment professionals.
The panel boasted speakers from three of the UK’s most well-known and respected research organizations to provide their thoughts and analysis on the London economy, the current state of play and projections moving forward. Viewers were invited to post their questions throughout the duration of the webinar.
Mr. Richard Holt – Oxford Economics is a leader in global forecasting and quantitative analysis servicing international corporations, financial institutions, and government organisations. Mr. Richard Holt, Head of Global Cities Research, provided an analysis of the economic impact of Covid-19 on the UK.
Mr Holt presented the underlying fundamentals which give reasons for optimism (16:00, slide 9). He highlighted that consumers are flushed with cash due to aggressive savings over the last year and is indicative of large pent-up demand. Secondly, we are increasingly learning how to live in this new world and how to deal with working and living remotely. Thirdly, Mr Holt highlighted the government stimulus and overall economic policies in place to underpin demand during the recovery. Moreover, Mr Holt remarked that Brexit has been challenging but mostly for manufacturing and that issue has not impacted London tremendously due to the skewness towards being a service economy.
Mrs. Helene Demay – Executive Director at MSCI, presented her company’s analysis of property returns over the past 10 years, and focused over the previous 12 months. MSCI is the leading investment research firm that provides stock indexes, portfolio risk and performance analytics to institutional investors and hedge funds.
Mrs. Demay began her presentation by sharing UK property investment results 2020 across all asset classes and locations (32:00, slide 1). She showed total returns of all UK property turning negative in 2020, driven by the pandemic, but was subsequently followed by very strong rebound (35:00, slide 3). Important to note that the UK real estate market experienced unprecedented growth of over 10 years of positive returns, with differences in performance across property types (36:25, slide 4). Mrs. Demay then focused on the residential market (45:30, slide 7), showing that total returns have always been positive over 30 years with the exception of 1992 and 2008; highlighting the resilience of this sector.
The key takeaway of Mrs. Demay’s presentation was that real estate remained the best performing asset class, over the long term when compared with bonds and equities.
UK Costar Group – Mr. Mark Stansfield – Head of UK analytics
Mr. Stansfield provided a review of the central London office and retail market (56:00, slide 2).He provided a review of vacancy rates which is on an upward trend and net absorption which is trending downwards, indicating that businesses are looking for less space. However, the spaces attracting the most attention are prime real estate. During his review of leasing and investment activity he explained that the deals that are happening are driven by international investors (1:01:20, slide 12) with a focus on prime real estate, evidenced by record prices being paid on a square foot basis in both investment and leasing markets. The most popular areas with investors are considered the safe haven areas of London – Mayfair and St James, Farringdon (Crossrail).
Mr. Stansfield also suggested that the Cambridge and Oxford submarkets are becoming extremely attractive for office investments (1:09:30) among the major investors, citing recent deals by some of the largest players.
Consulco Group – Mr. David King
Mr. King highlighted Consulco’s three investment themes as recovery, regeneration and research (1:13:00, slide 2). He noted that our central scenario assumes:
- Mass immunization by Q3 2021
- Market recovery Q2 2021
- Demand for offices rise
- Discretionary spending on leisure increases
- Tourism returns
- Demand for retail and restaurant units re-emerges
Consulco’s theme of Recovery looks at London as a city with great resilience, citing two other major events that sparked pessimistic projections. First example being post 9/11, the death of cities and high-rise office buildings (1:15:00, slide 4) and post Global financial crisis, which began talk about the death of financial and banking services, end of large floorplate offices and falling values. However, historic figures indicate a more positive outlook.
Our theme of Regeneration is based on the vast amounts of central government money pumped into the economy, aiming to improve transport links, population and therefore demand for real estate overall (1:19:00, slide 9).
Lastly, Consulco’s theme of Research (1:22:00, slide 13) focuses on the Oxford-Cambridge Arc which has a focus on the knowledge and life science economies which likely to benefit greatly in the coming years as an emerging theme.