Postcard #22 | “Farewell to the master of the “Elevator Pitch””

“Yes the leasing is going well. We about to agree terms on four floors and the market is still strong for new space.”

“￡9.5bn of active demand they say. But I can get 3% in the bank, I get a treasury at 3.50% so why do I want to come to London…and in winter ?”

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“I am looking at expanding the portfolio – US or London is next….but I don’t need a gun in London.”

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“China is starting to look interesting again – especially if you put the money in there and then get it back from selling a REIT off shore.”

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“Yes we are cutting our fund valuations. It increases the dividend yield for the investors which is what they truly want…they don’t worry about value loss but they grumble when they only get 2%.”

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So farewell to the maestro, Burt Bacharach, whose passing I learnt from a news channel in a lift, appropriately serenaded by the musak of one of his many hits.

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And greetings from Singapore where the Year of the Rabbit seems to have begun (appropriately for a water symbol) in a wet fashion with tropical storms gathering. Raindrops certainly have been falling on my head as I moved between meetings with clients, most of whom indicate that stabilisation of finance rates is their primary concern at the moment.

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The magic moments of the low interest rate environment have long gone and a number who have refinancing issues are wishin and hopin that rates improve. I suspect a few in Seoul are certainly saying a little prayer.

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Fresh investors seem content with US Treasury or Singapore Bonds at 3.50% and are walking on by real estate. Why waste hard earned equity on something big in such uncertain times – make it easy on yourself until such volatility eases say some.

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That’s enough of Burt’s legacy but what of the market.

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Well the New Year always bring bullish optimism which is only going to increase as the evenings get longer and the winter coats disappear to the recesses of the wardrobes.

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The R word has changed – “Recession” has become “Recovery” although whilst there is a kernel of truth in the capital market, I fear that stability in the finance market will take a little longer than originally thought. Certainly any significant fall in rates seem unlikely until next year although most current forecasters seem to suggest 10 year gilts falling by to 2.75% by year end (Source: Capital Economics).

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And with the “we’re moving into the credit market, not placing equity out” view from worldwide global institution, the cynic would argue that debt must get cheaper – perhaps we could end up in a position where the number of lenders exceeds the number of equity buyers…shadows of 2006 spring to mind.

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But good news is starting to appear – the UK missed a recession last year. Last month, EY also released a positive report on the growth of London. Forget levelling up, London will see growth of 3.1% per year until 2025 they say and?more importantly the working age population is expected to grow by 4.7%.

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Yet the capital market hesitates. Interest is growing but action seems “unnecessary yet” – the dancefloor is empty but the ballroom is filling. Perhaps with Eurovision here, will the new “Abba” start the dancing in May ?

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And this is the crux. We are probably close to the tail end of market correction, yet the view of some investors are determined by what they are seeing locally. There is still disparity between fully open London and some other cities, but the leasing market is still offering data which shows it continues to thrive.

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According to Colliers in 2021 there were 46 lettings deals over ￡100 psf. In 2022,the numbers surged to over 63 and to some commentators much higher than that although this could be a result of inclusive rents.

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Further hope was given by an eminent lawyer this week who was commentating on his company recent decision to take yet more space in their latest building.

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“We have to take more space, as we wanted staff back in the office. But then they found it noisy compared to home, so we needed to create more thinking and phone call space to keep them there, otherwise, productivity wanes…”

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Today Grade A vacancy stands at 4% and future Grade A stock continues to fall which should result in rents rising. But with tenants space offering 25% of all vacancy across London, there is still a necessary element of caution needed in a bifocal market.

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Back to Burt - as for the brokerage community, most don’t know what to do with themselves overselling yesterday’s dreams and hoping for better times ahead.

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But as the old economic waters of “normal” finance rates start to be charted again, advice is key and as a client you need your advisers, not your brokers, to be close to you.

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If you are at the Festival that is MIPIM in France then please let me know as it would be good to catch up but otherwise, as ever.

Stay safe.

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Andrew