Investment in prime London offices has stalled as the UK gets close to the Brexit deadline, the Urban Land Institute’s conference heard this week.
After a very strong run, the London market is now ‘somewhat frozen’ as investors pause, said Michael Cochran, co-head of Europe at Eastdil Secured. He said London office pricing was ‘probably 10% different’ to 24 months ago.
‘On the continent though, particularly Germany and France, core is almost priced to perfection,’ he continued. He said a lot of investors are looking for ‘“core-with-personality” or maybe “core-with-attitude” in terms of other opportunities. A lot of capital is looking for yield, particularly Asian capital.’
One of the challenges in development, said Anne Kavanagh, Patrizia’s CIO, ‘is capacity in the system, right across Europe but particularly in Germany where it is really challenging, especially for medium-sized refurbishments, both underwriting construction costs and finding a contractor. ‘Construction costs have probably increased by 20% in some markets,’ she said.
Dennis Lopez, CEO of Canadian investor QuadReal, said his business was seeing cost overruns of 10-15% in the US, due mainly to labour and steel costs. ‘In this low inflationary environment, it’s interesting what a hard time (real estate) is having (in this respect).’
Kavanagh said there were plenty of opportunities in Europe, driven by ‘huge structural change’ as well as companies’ desire to be in CBDs. ‘The take-up in occupier markets has been really strong.’
This article first appeared in EuroProperty, PropertyEU's sister publication