Beyond Central London
Exploring Property Investment Risks Beyond Central London
In the realm of real estate investment, location remains a critical factor. The UK’s commercial property market offers a range of real estate investment opportunities, from London to less central areas. Whilst the wider UK market looks attractive, it is essential for investors to exercise caution when considering regions beyond central London due to risk factors involved.
A recent transaction involving the sale of the Co-operative Group’s Manchester headquarters exemplifies the inherent unpredictability of real estate markets outside the capital. Originally appraised at approximately £210 million, the property was eventually sold for approximately £140 million, indicating a substantial loss for the seller. This case, while seemingly isolated, underlines the broader challenges investors may encounter when speculating in regions that may lack the resilience and stability of London.
Market sentiment, prevailing economic conditions, and the actions of other investors are factors that can significantly influence property values. In the Manchester situation, the reduced sale price reflected various market dynamics and shifts in demand.
The challenges faced by regions like Manchester underscore the strength of London’s real estate market. In Manchester, the initial property price predictions were contingent on the anticipated reduction in travel time to London and Birmingham facilitated by HS2. However, the recent cancellation of the HS2 line has prompted the readjustment in the market and cancellation of hotel and office builds. This scenario stands in stark contrast to London, where established hubs like Soho, Mayfair, Fitzrovia, and Belgravia continue to thrive, unaffected by the uncertainties that have impacted regional markets. The cancellation of HS2 is indicative of the nuanced risks associated with investments beyond London, emphasising the stability and resilience inherent in the capital’s property market.
The London real estate market:
In contrast, London consistently presents itself as a secure option for strategic investment. According to BNP Paribas Real Estate, prime office rents in London’s West End are anticipated to reach an exceptional £300 per square foot by December 2024. Demand for office space in London consistently outstrips supply, with rents exceeding £150 per square foot in prime locations.
Simon Knights, head of West End agency at BNP Paribas Real Estate, highlights the positive trajectory of the London real estate investment market, with rents regularly surpassing £200 per square foot. He explains that the key drivers of this growth are leasing events, business expansion strategies, and the demand for top-tier talent, all of which underscore London’s resilience as a thriving business.
The London property market benefits from a limited development pipeline, which helps maintain prices and appeal. Increasing demand for high-end properties, when appropriately priced, keeps the market resilient.
In contrast to the central London property market, venturing into property investment in wider Britain poses certain risks due to the unpredictable nature of these markets and their susceptibility to external influences. Conversely, London remains a secure option, with prime office rents on a trajectory to reach unprecedented levels. For investors seeking a more stable investment environment, London continues to be a preferred choice within the ever-evolving property landscape.
Published: November 9 2023
Author: Alexandre Piechaud