A Brighter Catalyst

The month of March, dominated by MIPIM, tends to act as the annual barometer of the property market, a bellwether of sentiment and intention for the rest of the year. However, can we extend this analogy to incorporate the entire property cycle?

Last year, MIPIM was dominated by ‘Wet Wednesday’ and storm clouds certainly overshadowed the UK market. Along with the small matter of a Referendum on EU membership, investment volumes were down and sentiment was marred by uncertainty until the clouds began to disperse in the fourth quarter. What a difference a year makes – Cannes was revelling in the sunshine, the mood similarly vibrant. MIPIM was a hive of positivity and activity and the first of this year’s European elections, this time in the Netherlands, failed to produce another shock result some had feared. Hope springs eternal. Using this year’s sunny barometer, can we in fact argue that the cycle has been extended and the positive atmosphere will be here to stay?

Having benefitted from three days in Cannes, not even the SNP and its perennial quest for independence could dampen excitement. Perhaps if the ‘Scotland’ stand had as much energy as Manchester or the West Midlands, the powers that be at Holyrood might recognise the power of one rather than independence.

The regional presence, so well fronted by Manchester, was impressive and had great momentum. Other UK Cities are certainly reacting positively and as I wrote last time, the growth of international capital into the regional markets is increasing all the time, with Middle and Far Eastern buyers almost doubling the amount of money they spent in the UK’s regional markets in 2016. Unsurprisingly, Birmingham and Manchester in particular are witnessing strong international interest on all investment sales, development funding and residential projects, benefitting from strong infrastructure and global connectivity. Seventy percent of all investment deals in Manchester in the past twelve months have been acquired by international capital.

In terms of market activity, the key themes on everyone’s lips are:
1.Berlin (the new B word)
2.PRS
3.The Cheesegrater – 122, Leadenhall

Berlin – the most fashionable city in Germany – seems to be coming into its own. Demand from every corner of the globe for Berlin real estate is extremely strong, evidenced by the results of CBRE’s 2017 EMEA Investor Intentions Survey. Berlin jumped to second place from fourth in the rankings of the most attractive cities for investment in EMEA and three German cities were ranked in the top 15. Berlin’s wealth of human capital provides a great incentive for occupiers and looks set to provide a springboard for growth but London remains the number one destination for global capital.

PRS – long since the buzz word of the UK market, keen to tap into the multi-family market so popular in the US. There are now more new entrants into a market which has been starved of product and operators. The ideas, capital and knowledge are all in abundance but more land and expertise is still required. Harry Downes and Fizzy Living have set a great benchmark, not just in operational quality but in speed of delivery, which has provided a catalyst for other developers and operators.

The Cheesegrater – iconic, striking and exchanged. The epitome of a trophy deal in this cycle, a milestone transaction for the industry and a great endorsement of London’s continued appeal. It is also a just end for the UK REIT which utilised overseas money to develop, resulting in a highly successful, not to mention courageous, JV.

However, the real story is what next? With an estimated £38 billion of capital targeting central London real estate, what will the knock on effect of such a landmark transaction be? The grapevines certainly seem to suggest that there is more stock to come.

So thank you MIPIM for the catalyst for a longer cycle…. it feels like we are set fair for a while, not just in the UK but further afield.

By Chris Brett, Head of International Capital Markets, CBRE.