The end of non-dom in the UK

One of the primary drivers of this trend is the changing tax environment in the United Kingdom. London has long been a magnet for the world’s wealthy, with the ‘non-dom’ regime allowing them to reside elsewhere for tax purposes. This is all changing. Under serious pressure from Labour on this issue, the last Conservative Government announced a wind-down of this regime. Now Labour have won the election and are moving far faster to end it. This has naturally prompted many HNWIs to reconsider their residency in the UK.

The top location: Switzerland

There is interest from these HNWIs in several other destinations, including Italy and Dubai. But here at Unica we are seeing the biggest increase in interest in one non-EU European nation – Switzerland.

Switzerland does not offer a non-dom status, but it does provide an attractive alternative in the form of “lump sum taxation.” Under this system, taxes are levied based on an individual’s living expenses rather than their global income. This approach has proven highly appealing to HNWIs seeking to minimize their tax liabilities while maintaining a luxurious lifestyle. Consequently, there has been a marked increase in interest in Swiss properties, particularly in prime locations such as Geneva and the Alpes.

Why rent?

The process of acquiring high-end property in Switzerland and other desirable European locales can be time-consuming and complex. The best properties, often situated in exclusive neighborhoods with top-tier amenities, are rarely available for immediate purchase. This scarcity of available properties, coupled with the bureaucratic procedures involved in buying real estate, has made renting an increasingly attractive option for HNWIs looking to relocate quickly. Renting allows these individuals to secure a prestigious address in a short time frame, providing immediate access to the luxury and convenience they seek.

The flexibility that renting offers is another significant factor contributing to its rising popularity among HNWIs. In an uncertain world, where economic, political, and social landscapes can shift rapidly, many wealthy individuals are hesitant to commit to purchasing property in a new location without first experiencing it firsthand. After all, it wasn’t so long ago that London was seen as a forever-home for the super-rich. Renting provides an opportunity for HNWIs to assess whether a particular city or region suits their long-term needs and lifestyle preferences. This option is particularly appealing in markets where property values are volatile or where future residency plans are uncertain.

Remote work and renting

The rise of remote work and the increasing mobility of global elites have also played a role in this trend. As the ability to live and work from anywhere becomes more feasible, HNWIs are less tethered to a single location. Renting offers the flexibility to move between luxury properties in different countries or regions, depending on the season, lifestyle preferences, or business needs. This mobility is further enhanced by the growing availability of fully serviced, furnished luxury rentals that offer all the amenities and comforts of a permanent residence, without the long-term commitment.

In conclusion, luxury rentals are likely to become an increasingly common option for HNWIs who want to keep as much flexibility as possible. The wisdom of actually buying a luxury property and seeing its value rise won’t go anywhere, and many HNWIs will still choose to buy – but renting will take a larger and larger portion of the pie.

Stable but High Interest Rates

The sustained period of high interest rates has led to a somewhat cautious market, with potential investors hampered from purchasing property and sellers eager to hold onto assets rather than sell at a large discount. This trend is particularly evident in London’s commercial property market. According to property data group CoStar, there were no transactions exceeding £100 million in the City of London during the first half of the year. Given the lack of buyers, if you do have some capital some property is available right now that would usually be snapped up in a low interest rate environment.

WFH not going away, but differs a lot across the city

The WFH trend, which gained momentum during the pandemic, has generally stabilised. Office workers aren’t getting more days at home, and a lot are coming back into the office more. But we aren’t back to 2019 by any means.

WFH rates seem to vary a lot across the city. In central London, for example, the desirability of office spaces has become highly dependent on location and quality. Employees are willing to commute to prestigious and aesthetically appealing offices in the West End, where the vacancy rate was just 5.6% at the end of July, according to Knight Frank. This is especially the case as they can enjoy themselves at the theatre or in world-class restaurants in the West End after work. In contrast, the vacancy rate in Canary Wharf stood at 11% at the end of July, reflecting the reduced demand for glass boxes far away from other amenities.

This trend underscores a wider bifurcation in the market, where prime locations with desirable office environments are maintaining high occupancy levels, while less appealing areas struggle to attract tenants. Investors looking to capitalise on the commercial property market must carefully consider the location and appeal of potential investments. A London postcode isn’t quite enough.

Sustainability as a Key Driver of Demand

Today’s top tenants have serious climate change goals, and know that their buildings will go a long way to meeting them. This means properties that meet stringent climate targets are in high demand. Savills reports that over 55% of office rental take-up in the central London market in the first half of 2024 has been in buildings rated Outstanding or Excellent in the BREEAM standard.

This trend has led to more bifurcation in the market, where newer, greener buildings are enjoying stable rents and low vacancy rates, while older, less sustainable properties are finding it harder to compete. For investors, there are huge gains to be made in older buildings that can be brought up to standard with a capital injection.

Applying the Lessons of London to other cities

London is not alone as an incredible place to invest. The lessons of the city can be applied elsewhere.

Election could see London demand increase

The new government has signalled its intent to reform planning laws, aiming to stimulate growth and address the UK’s housing shortage. While these reforms may pave the way for increased construction in suburban and outer London areas, their impact on central London’s commercial property market is expected to be limited.

Labour Governments typically employ more civil servants than Conservative ones, so some increase in demand for top tier office space is likely over time. Already we’ve seen the new Government drop a Conservative plan to greatly reduce the headcount of the civil service.

Stability means this is a good time to invest

With high interest rates and worry about WFH trends keeping a lot of investors out of the market, those with some capital to invest can snap up some real bargains. This is especially the case if they have the money to bring these buildings up to a high sustainability standard, which will make them massively desirable to office tenants – particularly those in Government.

The Unique Appeal of Historical Buildings

The most expensive buildings in London are not the newer builds – they are the beautiful heritage properties, which exude an old-world glamour modern boxes of glass never will. This allure is complemented by their rarity: It is impossible for a developer to build a new old building. As a result, its existing old buildings become even more valuable, as they are so rare.

These structures, often meticulously preserved, provide a tangible connection to the past, something that modern buildings rarely achieve. And the world’s best organisations love the glamour and status that leasing office space in these buildings give them.

The investment potential of heritage properties

For all of that glamour, a lot of heritage buildings all over the world are in a poor state. Even in London there exists far too many incredible properties that can’t be rented to the best tenants because their beautiful exteriors hide decaying interiors without the modern conveniences needed for the type of office tenant. (Think showers, good internet, and bike parking.) Too many owners don’t have the ability to really bring these buildings to their full potential.

This presents a huge opportunity for investors willing to put some time and capital into making a neglected treasure shine again.

Why you need more than old buildings

London is far more than just a collection of heritage buildings: It is a living and breathing megacity with a bustling economy able to rent offices in those beautiful older buildings.

This is a crucial factor for real estate investors to consider. Are people still going to be working here when my grandkids inherit this generational investment? London retains the ability to grow thanks to its massive commuting belt and connection to the continent. You can also trust that your investment is unlikely to be put in jeopardy by a sudden political swing – nowhere has enmeshed the common law right to private property more than England. This sets London apart from cities in China where there is a lot of economic activity but less of a long-term guarantee of political stability.

Applying the Lessons of London to other cities

London is not alone as an incredible place to invest. The lessons of the city can be applied elsewhere.

Paris: Beautiful heritage, huge commuter belt

Paris has long been paired with London, and for good reason. While smaller it offers an incredible range of beautiful heritage property that the world’s best brands love to have offices in. And like London it has a gigantic commuter belt meaning the demand for that property can keep on growing and growing.

Geneva: Limited Space, High Value

Geneva, like London, offers a constrained commercial real estate market that is ripe for investment. The city’s picturesque setting and historical significance make its old buildings highly attractive to investors. Geneva’s limited space ensures that demand remains high, driving up property values. Investors looking to capitalise on this should focus on properties that combine historical charm with modern functionality.

Conclusion: Building Generational Wealth

Investing in cities with historical buildings and limited expansion opportunities is, not just about immediate returns; it’s also about building generational wealth, which is our key goal at Unica. These investments are long-term plays that provide sustained value over time, not quick bursts of money. Heritage properties, particularly in cities with strict building regulations and spatial constraints, are less likely to face market saturation. This ensures a steady appreciation in value, making them ideal for investors looking to create lasting financial legacies.

Stabilising values and emerging opportunities

Despite the challenges posed by fluctuating office demand and regulatory changes, the UK commercial property sector is demonstrating resilience. According to recent insights, the sector’s values are stabilising, with indications that the market may be bottoming out. This bottoming out is crucial as it signals a potential turning point, providing a foundation for future growth.

Industry leaders, such as those at Blackstone, have expressed confidence that the commercial real estate market is finding its footing. With values beginning to steady, investors are reassessing opportunities, particularly in sectors poised for growth, despite broader market uncertainties.

However, while the City thrived, the West End experienced a small downturn in activity, this has been attributed to a dwindling supply. Upon closer examination of the West End, each of its submarkets experienced a surge in Grade A space, averaging a remarkable 104% increase in Grade A, compared to Q4 2022, notably with a threefold expansion in King’s Cross-Euston.

The office sector: adapting to new norms

One of the most debated aspects of the commercial property market is the office sector. The pandemic accelerated the adoption of work-from-home (WFH) policies, leading to a re-evaluation of office space needs. Although this shift posed challenges, it also opened up new possibilities for flexible workspaces and hybrid models.

British Land’s CFO Bhavesh Mistry, quoted by Reuters, reported that across their office portfolio occupancy from Tuesday to Thursday at least is at – or above – pre-pandemic levels. However, demand seems focused on prime central London locations, and superior commercial offerings, with the landlord shedding assets in Paddington, Euston and Canary Wharf.

Landlords and property managers are increasingly focused on enhancing building amenities, improving digital infrastructure, and promoting environmentally sustainable practices to secure the best tenancies. Such adaptations are essential as companies seek to balance remote work with in-office collaboration, driving demand for versatile and innovative office environments. However, with sustainability it is not just meeting a tenant’s expectations that landlords need to concern themselves with – it will very soon be part of Government regulation.

Sustainability and regulatory compliance

A critical factor shaping the UK commercial property sector is the need for compliance with new energy performance certificate (EPC) regulations, with buildings requiring a rating of E or higher.

Whereas previously lower performing assets might have been unappealing to some tenants, requiring landlords to reduce rents to make them attractive, now lack of sustainability compliance will make these assets plummet in value if left as is.

The need for landlords to upgrade older properties to meet stringent energy efficiency standards comes at a cost, but it also presents an opportunity for owners to enhance the appeal and value of their assets – or for buyers to buy low and invest in improvements. Last year Blick Rothenberg found in an annual survey that only 80% or landlords were aware of the need for compliance. This, in the last year, has increased to 100%. Previously where 80% of those surveyed in 2023 didn’t know the cost of improvements needed; this year just 10% are still unsure.

Investment insights and market sentiment

The overall sentiment among investors in the UK commercial property market is cautiously optimistic. With interest rates steadying the cost of borrowing is becoming more predictable, which is essential for planning and investment decisions. This stability is likely to encourage a renewed flow of capital into the sector, with investors seeking to capitalise on emerging opportunities in office space, retail, and industrial properties.

Additionally, prime central London remains a focal point for investment. The city’s diverse economy, robust infrastructure, and global connectivity continue to attract both domestic and international investors. As the market adjusts to new dynamics, London’s commercial property sector is well-positioned to lead the way in recovery and growth.