London skyline

27

December

2016

London Falls from Grace with Property Investors in 2016

London: Slips out of the Top 10

London has slipped out of the top 10 best cities in Europe for investment prospects in property for the first time since 2012 to 15th place, thanks to high prices and a crunch on yields.

Berlin and Hamburg took the top two positions in the Emerging Trends in Real Estate report by PwC and the Urban Land Institute, while Birmingham came in sixth.

The report, which is a useful guide to where experts think the market might be heading, collated interviews with more than 500 developers, investors and property managers across Europe.

They were asked to rate each city based on investment prospects, and for their impressions on the future of the property market – both residential and commercial.

London, while still the biggest investment market for property in Europe, came in one place below Istanbul and two below Budapest, despite their volatile political situations.

Lisette van Doorn, chief executive at ULI Europe, explained that Istanbul’s popularity was due to its quickly expanding population, which created enormous opportunities for investors. The report looked at intentions of investors, rather than whether actual capital was heading into that market.

The report suggested that investors are ready to call the market as prices may have finally reached their peak. Some investors suggested that yield compression in the UK capital is either at an end or likely to tail off in 2016. Most still see it as the first choice for those who want to preserve their wealth.

Pin in a map of Birmingham
Birmingham. The growing business hub

Gareth Lewis, the director of Real Estate at PwC, said: “London is the largest real estate market in Europe.

“Money tends to plough into it during the harder times, as people are looking for a safe bet, somewhere to keep their money, and as prices go up and yields compress, people looking for better rewards will look to secondary cities.

“And that’s when you see cities like London slide out of the top 10. It’s not a long-term damning of the London market by any stretch of the imagination. It’s just a reflection of where we are in the cycle.”

Birmingham remained in sixth place for the second year running because companies are starting to move business there, such as HSBC, as well as HS2 and its relative cheapness in comparison to London.

Paris, the third most active property market in Europe, came in 22nd on a list of 28 cities for investment prospects. Respondents said that it was “too expensive” and had problems of “political instability”, with another adding that they “would approach Paris with caution”.

One theme that the report also highlighted was that private rented apartments and other residential investments are seen as a big area of future growth in London. Ms van Doorn said: “We see almost all types of players getting involved, if they are not already, in residential. That is not only in the UK, but across Europe.