Property tourists after “safe havens” seen as bright lights in London economy

As 20,000 property professionals last week descended on Cannes in the French Riviera for the annual party and networking event that is Mipim, the mood among the British contingent had lifted.

Lesser known by the world than the Cannes Film Festival, but considered by locals to be the biggest money-spinning event to hit the city, this year the talk was of recovery. While the UK economy languishes in the economic doldrums, discussions along the Croisette, in the city’s grand hotels, the beach side marquees, and the yachts moored in the harbour, were quietly positive.

With commercial property investment in London at the highest level last year since the crisis took hold; signs of increased property lending; building momentum in the capital’s tenant market; and hopes that those factors will collectively seep through to the regional markets, there is evidence to suggest that the optimism is not misguided.

After a tough start to 2012, the feeling echoed in Cannes was that the strong end to last year has continued, signalling a positive market for the spring and summer months.

The emphasis at Mipim has shifted over recent years, away from the drink-fuelled revelry that characterised the days and nights at the event in years gone by, towards more serious business.

“Everyone is more focused now. They’re here to do business, and that’s a good thing,” says Mark Ridley, the chief executive of Savills in the UK.

The relaxed element of the show has not been eliminated entirely, but it is against a more sober backdrop that deals are made and contacts cultivated. At the Palais des Festivals, the official conference centre for Mipim, projects, locations, and companies are showcased.

The British contingent was there in force, with much discussion about those long-term regeneration projects in London which finally seem to be getting off the ground: Battersea power station; Elephant and Castle; The International Quarter at the Olympic Park.

The UK’s other major cities were represented – from Manchester to Birmingham, Leeds and Glasgow – but London boasted the biggest stand, the biggest schemes, the lion’s share of activity, and Boris Johnson.

Investment in central London offices jumped to £14bn last year from £9bn in 2011. While this was not a return to the highs seen in the pre-crisis years, with £15.5bn and £17.5bn invested in 2006 and 2007 respectively, nor was it the relative lows of 2008 and 2009, when investment fell to around £7bn as financial markets and global economies imploded .

The biggest deal last year was the £520m purchase of Hammerson’s London office portfolio by Canada’s Brookfield, as the former chose to focus exclusively on retail. This year has already seen the sale of the City’s Ropemaker Place by British Land for almost £500m.

The feeling rippling around Cannes was that increasing demand would persist this year as investors continue to favour London as the ultimate safe haven City in Europe.

Extolling the virtues of Britain’s capital as any Mayor of London would, Boris Johnson says that while it would be wrong to be complacent, London has fundamental advantages from its timezone to its native language, its young and growing population to safe, improving transport infrastructure .

“When you’re an international investor, and wondering where to put your money, you know that London is a banker. You know it’s going to be safe,” he said.

“I think the time for sitting it all out is over. There are still problems, there are still anxieties, but it’s more positive than I’ve seen it .”

The latest analysis appears to back up the theory, with investors favouring London property over any other City in Europe as a target for investment in 2013, according to agents CBRE. Other favoured cities in Europe include Munich, Berlin, Paris and Warsaw.

Money has flooded into London from around the world, from US and Canadian pension funds, from Europe, the Middle East and Asia, and as the world opens up for business, so too do new investors.

“China is opening up. There is not a lot of investment from China as yet but it is coming,” said Adam Hetherington, managing director for central London at CBRE. “There is so much new money around.”

The issue, he said, will be finding sufficient volumes of property to sell to meet demand, because many foreign investors are seeking only the very prime assets.

There are also signs that the availability of money is picking up, with some of the UK banks back at Mipim with the cash and will to lend to the property market after several years away.

There is also a sense that if the supply of prime offices for sale in London cannot meet demand as expected, investors will be forced to take bigger risks and buy into other types of property, into the secondary market, and potentially look further afield in the UK to the regions.

James Goldsmith, who specialises in central London and international investment for Savills, believes however that money is more likely to be diverted to other major cities in the world rather than the UK regions.

“If you are global, you like the idea of being in London and other major cities. They are much more likely to say ‘London is too hot so we’ll go to Manhattan,’” he said.

The tenant market for commercial property was difficult across the UK in 2012, but recent activity is fuelling hopes of a tentative recovery there too.

“A lot of people have been sitting on their hands but people can’t sit on their hands forever and we’re seeing a rise in confidence,” Mr Hetherington said.

“We are starting to see for the first time competitions for space. This could be the period where we start seeing things turn as stock diminishes, interest rises, potentially pushing up rents.”

The so-called Cheese Grater and competing Walkie-Talkie buildings under construction in the City’s insurance district are both more than 50pc pre-let, while the technology, media and telecoms sectors are also fuelling demand.

Google has signalled the go-ahead for a £700m new UK headquarters at Kings Cross.

Blackstone has showed its confidence in the West London occupational market by starting to build the final office building at Chiswick Park without securing a single tenant, while other schemes have also attracted growing interest.

“The bell has been rung and the bottom has been hit.” said Stephen Hubbard of CBRE.

It is hoped that improvement in London will gradually ripple through to the more challenging regional markets.

“The availability of bank finance will certainly improve the market in the regions but it will be a while before the tenant market recovers there,” Mr Hubbard said.

So while the champagne wasn’t quite free-flowing in Cannes last week, the party could be on its way.