Alternative investment

The London market has reached a low ebb, with fewer properties than ever coming to market. But while prime investment opportunities may not be available, Estates Review outlines some alternative prospects for purchase in the capital

Anyone following the property news can’t have failed to notice that things have gone quiet in the market recently. Even in London, the power house of commercial property sales since the recession, activity has dropped. Foreign REITs and investors, who have generated much of the action in the past months, have backed away from the market, partly as a reaction to the mild resurgence in sterling but more because of the lack of property coming to market.

Meanwhile, the big names are using what capital they have to pick up the pieces of failed investors and developments, such as Aviva Investor and Exemplar Properties purchase of the former Middlesex Hospital and the various buyers of Simon Halabi’s former White Tower portfolio.

The lack of development is also having an effect on the rental market, with demand for prime outstripping supply and causing rent rises. Heron Tower has only recently reached practical completion yet is already securing lettings at £55 sq ft – a price that reflects that the building has space available as much as the price tag for being an occupant of London’s tallest building.

There are some glimmers on the horizon though. While the new skyscraper cluster currently expected for the City of London will offer high calibre space in terms of rent, it is the markets south of the river and further east where developers should be looking for the more interesting options over the next few years as a series of new schemes get underway. Finance will likely be the main barrier to any purchase right now, but for those with the means the opportunities have rarely been better in the capital.

For the more conservative property hunters, the redevelopment of the London Bridge Quarter may present some interesting opportunities – even if they are in the shadow of the ever growing Shard. Though a largely developed area, there are plenty of options available, with railway arches and former warehouse spaces around London Bridge and up-and-coming Bermondsey offering great potential for developers to pick up quirky properties. Reasonable spaces are currently available around the million pounds mark, and once the years of regeneration planned for the area have finished (with a second phase of redevelopment recently awarded) owners will have a nice nest egg.

Those after a little more risk in their investment should look to the Nine Elms area of South London. With the US Embassy due to be built in the area and the very strong likelihood of the regeneration of the Battersea Power Station, with a potential new tube link as well, the area is likely to be a hot bed of activity in the next few years. However, with current owners cottoning on to this, the chance of grabbing the right space at the right price is decreasing by the day.

The wild card investor should look to the newly created East London line. Its importance as a major transport route bridging north and south has arguably not been fully realised yet, and may not be until the Olympics roll into town in 2012. Stratford of course will offer some opportunities, yet most have long gone.

Instead, smart developers and buyers should look to the path of the tracks. Boroughs such as Lewisham, Tower Hamlets and the much maligned Hackney are a wealth of opportunities both in terms of office and leisure developments – many below the half a million pounds mark. In addition, the train line’s eventual connection to Highbury and Islington will forge a link between some one of London’s most culturally interesting areas and one of its most affluent districts. Developers with the right eye and cash in their pocket can make a clever investment, so as long as they move with the character of the area.

Of course, with the current economic outlook, any purchase will have to rely on deep pockets to ensure its success. Refurbishment costs have risen significantly in recent years, while empty rates are acting as a huge drain on the industry’s capital. In this respect, it will be the smaller developments that cater well to their locations that will hold the best potential for returns. Thus, while it may not be the easiest market right now, a smart approach that avoids following the crowd will hopefully bring good results.