PropertyMay 1 2013

London property boom ‘unsustainable’

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ByAimee Steen

Continued growth in London property prices and rents cannot continue indefinitely and the fundamentals should be looked at, according to an investment manager.

Speaking at an AIC press roundtable on property, Robert Boag, manager of Ignis’ UK Commercial Property investment trust, said the reasons for central London growth have to be balanced with long-term growth potential.

“I am not forecasting that central London is going to drop like a stone, but you have to look at the components of that return, what is driving it,” he said.

Rental yields can be quite volatile, Mr Boag added, which find managers have to consider when purchasing commercial property.

“You have to be in and out of that cycle if you want to keep returns coming through,” he said.

Mr Boag added that while central London remains popular, he is seeing some investment interest elsewhere.

“We are seeing very tentative signs of investors looking for a bit higher returns out in the regions, it is still a very difficult market to find value and get true value.”

Much focus on UK property growth has focused on an increase in London property prices and rental yields despite the rest of the UK struggling or stagnating. Marcus Phayre-Mudge, manager of the F&C TR Property investment trust, said he is very bullish on UK property returns, particularly due to particular trends.

“The past two quarters in west London have been primarily driven by TMT,” he said. “This is the young, intelligent, well-educated workforce globally that wants to come to London. We make more animation in Soho than they do in LA, this is where it is all happening.”

Gaining access to units in London is, however, posing challenges, he added, with some areas seeing very little turnover.

“You have got to be able to get hold of the estate,” he said. “If you want to go out and start buying it now, it is extremely difficult. You almost have to already own it.”