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Brexit fears exist, but London properties attractive to Asia, Middle East

A survey has revealed the London development industry’s confidence in the inward investment market, with 51% of the industry predicting an increase or no change in overseas investment over the next five years despite the well-document challenges of Brexit.

The London Development Barometer is a bi-annual industry-wide survey from London based development manager M3 Consulting. It was launched in autumn 2017 to track changes in market sentiment from property specialists and decision makers involved in London development activities. 245 industry professionals took part in the Autumn 2018 edition, with almost 75% of respondents at the director level or above and an average of 21 years’ industry experience.

The Autumn 2018 edition found that 46% of the industry believe development activity levels will decrease in the next five years. Despite still revealing a sense of scepticism, this represents an improvement on the 57% who thought the same in autumn 2017.

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Almost 80% of the industry anticipates that Asia will become London’s largest overseas investor, increasing from 76% in spring 2018. 12% expect the Middle East to become the majority.

The industry also continues to be confident on market demand and particularly in the trajectory of build to rent (BTR), affordable housing and senior living, for which an overwhelming 84%, 87%, and 85% predict an increase in demand for these sectors in the next five years. Retail is the only market in which demand is expected to fall, for which confidence has halved between autumn 2017 and autumn 2018, from 41% to 78% now anticipating a decrease.

The increasingly popular industrial/logistics/ data centers sectors are expected to perform well, with 66% predicting an increase in demand over the next five years. Majorities of 46% and 39% predicted an increase in demand for the hotel and office markets, with just 11% predicting a decrease for the former.

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However, despite positing positive sentiment across overseas investment and market demand, the industry is nonetheless still concerned about the impact of Brexit more broadly and the government’s role in development activity.

77% believe Brexit will have a negative impact on activity, which is down from 80% one year ago. The same theme emerges in relation to government action, with 82% of the opinion that central and local governments can be doing more to enable development activity in the capital. That is down marginally from 86% in autumn 2017.

The industry believes that improving town planning policy should be government’s top priority, with 53% ranking it in their top two. 43% of respondents ranked funding for local authorities, infrastructure, transport and housing delivery in their top two, making it the second highest priority, as it was this time last year. Similarly, policies to support BTR and home ownership have consistently been ranked as the lowest priorities.

The industry has mixed views on finance. Despite 75% of the respondents predicting an increase to the cost of finance, the picture is however more balanced when it comes to the availability of finance. 30% and 28% predict an increase and decrease in the availability of finance respectively, leaving a majority of 42% who believe there will be no change. That figure was at 31% in autumn 2017, when 38% predicted a decrease in the availability of finance, revealing a renewed albeit limited sense of optimism.

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Gavin Kieran, director, M3 Consulting:

““The industry appears to be confident that demand for development opportunities will continue to increase, particularly in emerging asset classes such as Senior Living and Build to Rent. Overseas investment in the capital was at a record high in 2017 and 2018 has kept pace, with major commercial and residential transactions taking place despite limited clarity around London’s future in the post-Brexit environment.”