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00:00OK well thank you for joining. I've got James Cooksey. Who is the head of central London for the Crown Estate which meant a man who is an eleven billion pounds portfolio. On behalf of the Treasury and the Queen Camilla Del. Who is the managing partner of BlackBerry. His independent buying agency representing buyers only about more than half of whom are foreign. And then Giles Hannah who is a senior vice president at Christie's International real estate . He's a super prime London specialist. And then finally Jim Taylor who is leading British Land's super prime development in Mayfair overlooking Green Park OK so as as Jonathan alluded to London property it comes up at every dinner party you ever go to you read the headlines about foreigners snapping up multi-million pound properties. There's no doubt that London is a truly global city a sought after destination for foreign investors. I think we've got a we've got a slide here which should show hopefully. Yes. Price growth in prime central London is flattening out over the past the past year or so as well as sales volumes in prime central London. Also taking a dip. So I know having spoken with each of you beforehand you're not all in agreement on the state of the market. So let's just dive right in and start with Giles maybe. Where do you see the market now. What's what is behind the slowdown is that going to continue. Certainly so I think in the last 12 to 18 months the market has been somewhat flat and indeed in some areas has drops as the graph shows. This has really been due to the general election year last year and within May. And also the stamp duty changes that have come in. Interest to me though what we've seen on that graph goes up to July the last two months indeed we've actually seen growth in prime central London. I'm not expecting to see two and a half percent more growth between now and December and in fact 6 percent year on year between now and 2018. And this is driven simply by a lack of supply of really top causes stock in prime central London and indeed the international appetite to buy and own properties in London. And this is reduced to wanting to people who wish to store and maintain their wealth. London is seen as a number one centre in the world in which to do that in terms of real estate Kim what's your take on the market. I think you have maybe a different perspective. The flows of foreign capital coming in and what buyers are looking for. Yeah absolutely. I have a slightly different take on the market's agile. So what we're seeing in the markets really since the general election but also you know sort of going back to December when stamp duty changed is sort of tumbleweeds. So really not many transactions happening above 2 million at the moment a lot of transactions happening below 2 million. So really the state of the market at the moment it's a market of two halves. You've got the sub 2 million market which is extremely active. Lots and lots of investors still feel very comfortable with the idea of London property as an asset class and continuing to buy. There is a lack of supply. So there's a lot of competition below 2 million and our view is that that part of the market is quite well insulated from other factors and will continue to tick upwards . However the market above 2 million you know in our view that is a completely different market at the moment. I don't think you can really underestimate how the London market is correlated to the oil price. We've seen a significant drop off in in in client numbers who want to purchase trophy assets. So we're now talking sort of 10 15 20 million pound homes that market just simply isn't there anymore. Not only if you've got the oil price which has gone from sort of 80 dollars a barrel down to forty forty five dollars a barrel but you've also got sterling which has strengthened significantly against lots of other global currencies making actually loans and property pretty on unaffordable at the moment for a lot of foreign buyers. And actually what we're starting to see now is some of our foreign buyers really looking to sell some of their lungs and assets because they can make somewhere between 25 to 30 percent on the currency alone by selling up their London assets and bringing that money back home. So our view is that the top end of the prime central London market is very very vulnerable. We're certainly not seeing any evidence of price rises in fact know we're seeing evidence of price drops particularly in prime prime areas like Knightsbridge Notting Hill and we think that trend will continue for the foreseeable future Jim what's your take . You've got I think you've pre sold a lot of this development that you're working on in Mayfair maybe just talk about where you're seeing demand coming from now. Happy to give the specific example of of my project but then also have an opinion as to the broader market and I put it into three sections . Funnily enough enough too. We bought our site in 2012 at the time when we analyzed the supply coming through in Mayfair specifically where it's located. There was no stock coming through. Then there had been at a any time more newbuild stock since the Second World War. So we were well aware that more stock was going to come on and for us it was about would this site be able to differentiate itself in an extremely competitive market. We're facing Green Park. We looked directly at Buckingham Palace. We're about 100 meters away from the Ritz . We felt that this site would do that. We were concerned last year about the election we didn't know what the outcome of the election would be. We're a Footsie one hundred company where I'd driven some could say we have a lower risk profile than perhaps the sovereign wealth funds. So we actually launched on the twenty third of June last year. We are average price circa 5000 pounds of let's say we actually did a deal every day for the first two weeks in June last year and we break the previous record in Mayfair which was the penthouse next to the corner five times. So at that time the market was extremely active . However in terms of our broader perspective we see the market in three sections say we see what I call the mainstream market call it a thousand pounds of fat but a lot of it is significantly below that as real opportunity. As long as you can get out of London I think that mid-market a thousand pounds of fit to four thousand pounds of fat has its challenges. There's huge amounts of built stock coming through this chain. I see one and I establish a chain and then the super prime market. I think if you have differentiated stock about 4000 pounds of that we're still positive about it and in fact where of market at the moment and we're going to relaunch in 2017 and that's an indictment on our perspective of the market. And James now you've got a broader perspective on the market because the Granite State is doing mostly sort of mixed use commercial space office retail. You do have some residential there particularly in your new St James's development. How are you seeing demand and what is sort of global capital global foreign investors what are they looking for. Okay. I mean I think so broadly I I sort of thought of the panelists let's share Jim's view probably the closest we're not dealing in volume residential and in this sort of context but the things that we've produced over the last 12 to 18 months often are a byproduct of our office developments from a planning perspective and where they really special. And when you're creating something in a fantastic location and buyers are there they're extremely wealthy and we shouldn't sort of lose sight of the fact that whatever we're talking about here is north of a million pounds which is a lot of money we're finding that for a product that we launch close to Clarence House so really special location in St. James is we. We delivered a project that we went on site and within I suppose about three to six months we've gone contractual on four of those lateral apartments. Interestingly they rule two British buyers. So this isn't a base about overseas versus British today but I thought that was really interesting and these are people that are have chosen that location as their London home. They're going to live in those properties. I think other than that we've we've sold one or two very big homes so these are properties so somewhere between 50 and 100 million . And again that's a really rarefied atmosphere. So I think it is an indication as to where the market is. There's always going to be extreme wealth that wants to buy that sort of product but there's no question in my mind that the heat has come out of prime London over the course of the last six to nine months particularly. We've still got two apartments left in that series of four that we'd gone contractual on and we're talking to people. But it's I think evidence itself that we haven't gone under off on those last two and then we've got some other associated properties with it. I think it's probably worth just touching on the leasing market as well from residential perspective and I think again as long as you're delivering the right products in the right location might sound obvious but you know that that's kind of where the market is because of the supply and demand dynamics and the leasing market's pretty strong. And we're seeing some rental growth in sort of central core locations so we've we've got a block just off Piccadilly Circus which released really successfully . Interestingly we leased it to European bankers predominantly who were working in the city but wanted to be located in the West End. So that would be my sort of take on the market that we've been exposed to and the slowdown would you attribute mostly to stamp duty changes or global economic forces. What is affecting the market more. I think there's no question in my mind. I mean London is a fully internationalized marketplace. So what happens globally impacts all that we are doing in London . So no question about the impact of that sale price. Also global economics and the fairly benign rates of growth that we're seeing economically that is definitely creating taking the heat out of the market. There has been more supply of residential opportunities and certainly the market at the high end at the moment is saying if I want to buy a really special property I want to be able to move into it tomorrow we'll be at the probably going to change everything but the market is not looking for development opportunities whereas when it was the demand was much stronger they would take on board that development piece and that in itself I think is evidence of the market we're now in. All right. So Giles you're saying you're dealing at the top end of the market. Where are you seeing demand now. Is it you know from the Middle East. Is it investors in the eurozone wanting a safe haven. Know who who's buying now. Because it's very interesting. Well the panel said about the oil price. In fact I have seen the completely the opposite which is families from Saudi Arabia Qatar Abu Dhabi at the very top end of the market. So 20 million pounds plus for houses and flats. In fact looking to purchase in prime central London. In fact currently just between those three locations I've mentioned there is well over a billion pounds worth of buying requirements in prime central London today for this market. And the reason that is that is that these are buyers who are traditionally invest in oil funds and held stocks and shares in those locations in the Middle East. And in fact they are now wanting tangible assets and prime central London is a market that they are actively buying. To the extent this next week I will be visiting those countries in order to present London opportunities in the Middle East to buyers where there is a demand ultimately we're fortunate to be in London because there is an international appetite to be here where politically stable was seen as a location with excellent education Britain leisure facilities Britain's infrastructure. And this is a location that I think the London we'll see just continue to benefit us ultimately. Basic economics. There is a lack of supply of top stock and this will fill will fill in some demands for buyers and Jim what do you what do you think. Are you seeing sort of flow of buyers from the Middle East. For those reasons and how are they looking at this huge hike in stamp duty which is a sizable chunk of change for four. Even for investors at that level I think the Middle East specifically is very interesting . You have some royal families where no is maybe the cartridges example. The average age of some of the individuals doing business is actually quite young. It's in the sort of late 20s 30s up to 40s. There are other royal families where traditionally the power has been held at a much higher level a more concentrated level. But I think that might be changing. And so I think there is we are aware of the interest that Giles talks about. That's just an interesting example of a micro factor affecting the market. When we launched our development we actually have about 60 percent of our buyers what we call British and British based. And we spent a long time asking agents to do as pie charts of different nationalities and clearly life is more complex than that. People have a mother and father from different parts of the world. They're educated in one part of the world. Further Education and another. But generally British British based about 60 percent. And people often either located in one place or two. So there's a lot of rumors about the super Fry market being people with 10 15 20 homes. There are these people around as we all know but actually the market that we found was attracted to our development was much more low key as it were and just located in two locations either Dubai and London or New York and London or elsewhere. And is that something you sought out to make sure that there were a significant portion of buyers that were British based. No that's a good question. We wanted to launch in the U.K. We have a commitment to do that that we agreed with the London mayor a couple of years ago. We I had a fascinating process working out how we approach people say what we did is we got a list from both our agents who work collaboratively and split their fee of about 400 people. So we've only got 32 apartments. We're launching 10 and then we put those 400 people in an order thinking about families thinking about how to approach thinking about seniority between these families and then we approach the order and just went down the list and actually fairly high up the list. We started to get sales because that's obviously that's a concern that some people have voiced about that that the flow of foreign buyers coming into London property turning some neighborhoods into ghost towns because they are there if they use it as a second third fourth home or whatever and they're not there very often. Is that a concern. I mean I know the Crown Estate takes a much more holistic view of an area because you are so big and you have such sway. Do you look at that when you're you're selling. I think it's you know it's interesting point about the nature of the buyers and how they occupy the property. So I think it's fair. I think we have to acknowledge that for the big homes chances are the buyers of those big homes have got more than one and that they're not going to be there 24/7 the way that we've tried to address that is in a way we're fortunate we've got 8 million square feet in the west and we're in pretty much all of Regent Street with our partner north northeast bank and then we own four million square feet in St. James's with a couple of strategic partnerships Oxford and healthcare for Ontario Pension Plan. And the way that we've gone about that is to create a mix of different types of time. So typically if you're letting something on a six to 12 month period someone is actually going to be in the property and they're going to occupy it pretty much all of the time. And then we may have small apartment and say one or two bedrooms that we're selling and then the bigger homes. So there's a blend of different things going on. And as you said in your introduction we're also delivering lots of offices lots of retail lots restaurants. So it is a part. It's all part of a wider estate approach to create great environments the amenity that attracts both residential occupiers to London and also generates employment and the GDP that clearly Westminster London needs to continue to thrive. All right. That I think nobody wishes to see a empty properties or empty homes. However in London say 39 percent of buyers are from overseas. And in fact those buyers who purchase particularly the super primal level tend to arrive in London with in fact vast amounts of staff and create some jobs. Interior designers architects security teams et cetera who maintain that property continuously and in fact to live in there. So quite often a property that's purchased in a location such as Belgrave Square could in fact be occupied by five or six people or another family not necessarily the owners of the family but the people who are looking to maintain the property for the owner and therefore these big properties are not in fact as empty as perhaps people assume they could be. I think it's going to lead to an interesting debate about real estate tax. So in London where a market where we generally tax a transaction where stamp duty rather than the ongoing occupation. Clearly if you're in New York ongoing occupation is a larger element of the tax. I think if we see a trend of empty homes continue and I appreciate the spin off economic benefits but there will be political pressure particularly in that middle market to look at real estate ongoing tax as well as the tax that you just pay when you buy . All right that's right. Yeah. Camilla you know one of the things we spoke about earlier was you know in addition to the stamp duty changes they've also made. The government has also made it more difficult for people to come in and set up an offshore company and buy a property that way. How is that affecting the market. Because I know there are other changes that David Cameron announced this summer that they're planning to introduce as well on that. Yeah I mean I think you know our view is that you know at the end of the day the top end of the London property market it's become a lot less attractive for foreigners to purchase property in the UK for a number of reasons it's not just stamp duty but you know before the last two budgets it was possible for an international buyer to set up an offshore company to purchase a property here anonymously . And then on death to pass that asset onto their as free of taxation or even to sell it on for profit and not have to pay any capital gains tax. None of those benefits are that any . You know the rules have changed . So you know I just think for a lot of international buyers they are taking a pause at the moment. That's not to say that they won't continue to be attracted to London. You know London will still continue to attract I believe international buyers for a variety of reasons education quality of life and it's still on a taxation level quite attractive for non doms to come at least for the first 15 years. However I do think that there are a lot of buyers out there who are just waiting at the moment. Our view is you know we think the top end of the market needs to see some sort of correction. I think the problem with the prime end of the London property market is a lot of owners of super prime property don't necessarily need to sell it. We saw this happen the last time the market crashed back in 2007 2008 the financial crisis volumes fell dramatically. There weren't that many transactions taking place but the transactions that did take place took place at significantly lower levels set to peak. So I think what's going to be interesting going forwards and certainly the advice that we're giving to our clients at the moment who are thinking about purchasing the sort of 10 million plus level is to adopt a bit of a wait and see approach at the moment. We do think that there are a number of new developments that are coming onto the market in areas like Belgravia Mayfair Knightsbridge. We think there's that there's quite a strong possibility of oversupply at the top end of the market and it'll be a case of whether the developers selling those schemes want to get the sales out the door and actually do lower their prices . We've seen some evidence of this already on certain schemes or whether they close their doors a little bit like the candies did in 0 7 0 8 they just shut their sales and marketing suite and weighted the market out and then started selling when things were looking better again. But we think potentially over the next six to 12 months there could actually be an interesting buying opportunity at the top end of the market it won't be when everything is more likely to be I think on on new build new developments because of oversupply. OK. Dare I ask Isn't it healthy that there may be a bit of a slowdown or a correction wasn't it. It's sort of unsustainable. What was happening before. Don't you think. I mean yeah I mean look I mean I think the you know in a way I'm more a market with greater levels of equilibrium is a good thing and I would say that for residential I think it's doing a great job in trying to cut a deal for some of their clients by the way but I think a market with sort of a more even spread between supply and demand is a good thing and more sustainable actually . And I think if I may I would just comment briefly on the commercial market as well because of course you know residential is part of the market but equally the commercial too and I think our view on pricing commercially is that we've the things I'm very fully priced at the moment in terms of price and I'm sure you're familiar sort of three and a half percent for prime less than 4 percent cut rates for the city significant rental growth over last couple of years those values that really fell from. From our perspective we we haven't made a material acquisition since August last year and like a lot of landowners we've been busy putting the money into the stock that we own and I getting a better return of development and then you come from a from a standing investment and I think certainly that inward investment view on pricing what's happening in the global economic climate suggests that the residential outlook is similar across the piece and I think we can expect more of that going forward. And you know while some are calling the top of the market necessarily it's difficult to see things getting better. I think you take from that what you will but I mean Western office space is some of the most it's the most expensive in the world according to its Cushman Wakefield report from last year it's still miles ahead of any other and I think it still represents great value of course. But I think a friend from an office perspective they've asked the question we're operating in a limited supply environment and the demand is solid but not exceptional. And I think if you're an occupier today you've got relatively little choice but you're coming to a landlord such as ourselves and we're striking terms on the basis that we're really serious about doing a deal with you and we want to build a relationship for the long term you know we're dealing with large companies and some of the smaller ones too. So I think from an office perspective there is some big rents or growth rents in some cases well north of a hundred pounds per square foot and I think if you add in new rates and all your other outgoings then you know it does. It does feel as though it comes to a point where not necessarily affordability but if you're an investor in that organization how much do you do you want to see that organization paying in terms of outgoings. So you know there is a point at which I think it would get too great for some occupiers but it depends on the nature of your business as well in terms of how you generate your revenue. I think it's going back into the residential market interestingly when you ask could this be. Can this be sustained. If we look at I think we have to bear in mind that the difference between the market is a different price levels. If for example we take a developer called the Knightsbridge next to the Bulgari Hotel in 2007 that development was selling at a thousand pounds per square foot . In fact it was the first projects in London to sell us above two thousand above a thousand pounds of Square. That development today if we fast forward to 2015 is selling at five and a half to six thousand pounds per square foot . My view is by 2020 those apartments will be selling at somewhere around ten thousand pounds per square foot not as focusing on the very top and the very super prime end of the market. The reason I'm bullish about those figures is simply again due to the lack of super prime stock. Nobody envisions selling something at a thousand pounds a first in 2007. Today being approaching six thousand pounds a foot and I would imagine that you'll see the same happen again over the next four to five years that's super prime market I'd like to open it up to questions if there are any. Anyone have any wait till we get to Mike Bloomberg if you're investing outside a prime London which area of London would you go is personally invested. And then if you're investing out of London again with your own money where would you invest and hoping you would say Manchester because that's where we've we've been really thoughtful about the site value is being paid in the subprime market for the last two or three years and the last major investment we made was in Zone 2 was in Canada water for about 50 acres and we thought that was a really rare opportunity to buy a site of that scale in that location. What it allows us to do as well as think about cycles in the market . But it's a 30 year project is to think about two things that are really important to us which is place making and technology say we've had technology on some of the other panels and we really feel that this is hitting our business quickly as well and say that it allows us to really build an infrastructure to really design clever buildings for the long term. We have a good sustainability record already. We're growing on that. We're building on that. And that was the investment that an example of the sort of thought process that we have outside London it's really interesting say four years ago you know there was a lot of Chinese investment in in Birmingham that was the first wave I think we felt the distance between us and Birmingham. The Chinese just didn't see understandably operating in a different scale. There's been a lot of talk over the last two or three years about Manchester and some of the other big cities and I think again certainly if you look at the rental markets and investments in there finally having been talked about for 10 or 15 years there's real commitment to long term rental investment in the regions there is another question. Do you want to ask him. Yeah. I mean I think from from a ground perspective. Again it depends on your business model in terms of what you're seeking to achieve. But we're an income that total return business. So we've been busy over the last five years building up a retail portfolio outside of central London. So we have. Yeah we've been buying retail malls and shopping centers over the last two to three years particularly for example we're developing the Westgate centre in Oxford jointly with land securities which is a market perennially undersupplied with quality retail. We're putting in a 850000 square foot shopping centre. So I would say personally investing in dominant retail so long as you supply demand dynamics are sound. Is it something that will generate an ongoing dividend. You know it's an income led enterprise would we do that today in turn would be by the Westgate centre if it was up and built today. Probably not because of the pricing but to buy in at a point where you're effectively generating or benefiting from the development upside . Yes that is something that we would do as a business another question here deal Cullinan from Bloomberg where would be the worst part of prime London to buy for the next month or so. So we remain pretty cautious at the moment on prime central London particularly really on anything above 2 million unless we can see that some of the heat has been taken out of the asking price. And it's a vendor who is realistic about the market that we're in at the moment. We are tending to avoid and really just try and hunt out those sorts of opportunities across prime for our clients. I also think what's really interesting and sort of going back to the question about why would I put my money into the market at the moment. I think where there is value to be had and where we can see opportunities for a lot more future capital growth in London is definitely in areas that we call sort of out subprime. So looking at areas for example like white city there's some very very interesting regeneration happening there at the moment with the development of the BBC Television Centre. That development for us ticks a lot of boxes for what we look for when we put our clients into things close to transport links new hotels going in their offices going in there and also a low density scheme. I think that's quite important it's fewer than a thousand units. If you compare that to Battersea Power Station you know we've actually never advised any of our clients to buy into the Nine Elms area. For us you know we just feel that there's there's too much supply that there's going to be circa 20000 thousand units that will be developed in that area over the next few years and I think what's really interesting about the battery power station at the moment is a lot of sales presales of market sales were down in Asia were sold to Malaysians who now have a bit of an issue because their currency has basically fallen through the floor . They are now not able to afford. I don't think to complete and I think it's a development to really watch in terms of prices coming down and potential buying opportunities maybe maybe some fire sales happening in that in that kind of a development . Interesting . Another question here because history suggests that that never ever ever happens South Sea Bubble tulip bubble dot com bubble in fact. So I just say to Charles I suggest you talk in your own book. The second point I want to make is there are 65 million people in this country and you live the four of you in a very selective bubble of multimillionaires buying 20 million 10 million two million pound houses. I think you all because you live in this bubble completely underestimate the anger at ordinary people who cannot afford to live in this country's capital city . Utterly utterly. I think you're missing the political sway one of the things we saw in the general election is that Labor disastrously the only place they didn't do disastrously was in London where they actually did really quite well. And one of the main issues was housing affordability. I put it to all four of you that you and your clients are destroying the London economy because in 20 years time where will all the workers need to live. And by the way I don't think living in a 40 million pound house as a housekeeper is a fundamental way for London's economy to do well. Slightly controversial. There you go I think I may step up to the plate to announce that I do understand the market outside London for seven years I run a portfolio that was based throughout the UK it was in suburban Glasgow it was in North Wales it was in the East Coast it was in a whole range of places so I do understand that the rental and sales market outside London. I think in a way I agree with you and that's why our current focus has been on that mainstream market that I talked about and has been on that zone to where you can buy a range of accommodation . Some of it is rented. Some of that social housing. Some of that is private housing. And by the way there are companies out there that have interesting business models where you can move between the two so you can move into a social housing apartment or an apartment. As I said paying social housing rent then actually you get a job life gets better you're able to stay in that apartment pay private rent and then actually you continue to progress and you're able to buy a share of that apartment . So I think they sort of models much more fluid much more dynamic models likely they have their challenges on the management side sometimes but I think we're beyond hiding behind the management it's afraid the clock has gone to zero. So just as the conversation is getting really interesting and heated we have to say sorry we have to continue this perhaps over break. If you if you stick around. Thank you very much for joining us . Thank you .

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Surreal Estate: London Property Panel

Since 2009, more super-prime properties have traded hands in London than in any other city - will the bubble burst? Bloomberg’s Stephanie Baker speaks with Giles Hannah, Senior Vice President at Christie's International Real Estate, James Taylor, Project Director for Clarges Mayfair at British Land, Camilla Dell, Managing Partner and Founder at Black Brick Property Solutions and James Cooksey, Head of Central London for The Crown Estate. They speak at the Bloomberg Markets Most Influential Summit in London. (Source: Bloomberg)

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The only daily news program focused exclusively on technology, innovation and the future of business from San Francisco. Hosted by Emily Chang.
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