IPE Real Assets: Future of offices - Betting on the Big Smoke
According to IPE Real Assets,
“We are just not convinced that anyone out there that can really challenge London’s dominance,” says Peter Papadakos, head of European research at Green Street Advisors. “If I could pinpoint just one [factor], I would say it is the size. Size matters because it allows for a deeper pool of [talent and] the job skillset is much more diverse.”
He adds: “Yes, it will be harder to move here if you are not a UK citizen, but that doesn’t stop New York or other cities across the world where you need visas to be successful. It’s going to be another cost of doing business, but fundamentally it shouldn’t structurally change the appeal of London.”
Under a Brexit deal scenario, however, rents are not suddenly going to up either. But the capital markets are likely to see a response. “I don’t think the occupational sentiment is all of a sudden switched towards people thinking they are going to hire more than they were going to hire before,” says Papadakos. “But you have more liquidity and probably cap rates start compressing.”
Initial yields of 4.25% in City could go to 3.9%; cap rates of 3.75% in the West End could go down to 3.5% or even 3.4%. “All of a sudden, at least the negative scenarios are off the table and people see a tight market where rents should be stable, and maybe now there is a little bit of tail possibility of upside surprise,” Papadakos says.
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