ROBERTBAILEYP R O P E RT Y

ROBERT BAILEY SIMON PRITCHARD-SMITH THOMAS VAN STRAUBENZEE

Market report: 2011Property experts have long warned of the growing chasm between the prime central London property market and the wider UK market. When the discrepancy was first noted several years ago, many pundits questioned how long this dual market could continue. Now it is generally acknowledged that prime central London is and will probably always be its own separate microcosm.

In the final quarter of last year, the wider housing market fell 2.5 % whereas the prime central housing market remained more or less unchanged. This year continues to bring more bad news for the wider market with Rightmove commenting that, “the current subdued market volumes are set to be the new norm unless the seemingly never ending discussions between Government and mortgage lenders find some way of increasing ‘Mr Average’s’ access to lower deposit mortgages without pricing them out of the market.” This obviously is not a factor in prime central London where most homebuyers are cash purchasers or, at least high net worth individuals who do not require the type of home loans described above. If anything, lenders are actively courting affluent homebuyers as it allows them to lend more profitably at lower risk.

While the prime central London market does work independently of the wider one, that is not to say that central London is impervious to market downturns. If anything, it is facing a greater threat than the wider market but it is simply influenced by different factors. The new top rate of income tax, a tax on bankers’ bonuses and George Osborne’s threat to tax all non-domiciled residents, not just those who have lived here for more than seven years, will affect London’s position as the number one destination for the world’s super-rich. HSBC, which is UK based, is actively seeking to relocate its operations abroad because of the high taxes and restrictive corporate practices seen in London.

Up until recently, London has absorbed the higher taxes and greater restrictions without much protest but HSBC’s move may signal the start of a growing rebellion. It puts politicians in a difficult position as the wider populace holds very negative views towards the banking industry, holding them responsible for the current recession, yet if the Government gives into populist sentiment, it risks alienating the banks and other financial institutions that generously contribute to the tax base. In other words, the government risks slaying the golden goose.

We believe that the prime central London market will weather this impending storm, although growth may eventually slow. It is no surprise to us that the high net worth individuals from north Africa and many Arab states have sought refuge in the capital, seeing it as a stable political and economic base at this time of uncertainty. We also continue to see investment from Chinese and European investors avoiding high inflation in their native economies.

London is unlikely to continue the stellar rate of ascent it has enjoyed over the past decade but few sensible people truly believed that it ever could. The Government must, however, ensure that the wealth creators that London attracts are not forced to relocate elsewhere. It is a risk, but hopefully one that George Osborne is actively working to avoid.

Mayfair became even more desirable as a residential neighbourhood in 2007 when the US government announced that the US Navy headquarters in Grosvenor Square would be put up for sale. Developer Richard Caring bought the property and has recently gained permission to convert the building into 41 luxury flats while the embassy itself has been purchased by real estate investment firm Qatari Diar, the developers of the Chelsea Barracks site.

Meanwhile, The Grosvenor Estate began to develop the large swathes of Mayfair it controlled. Owners of nearly 100 acres in western Mayfair, it has systematically re-developed many of the main thoroughfares in the area, most prominently Mount Street, which is now home to the flagship stores of some of the world’s leading designers and recently saw the fully refurbished Connaught Hotel re-open for business.

More recently, the estate has announced that it will soon realise its vision of a “break-out area and oasis” in Mayfair’s Duke Street. As they have done in Motcomb Street and Elizabeth Street in Belgravia, the plan is to create a European style streetscape conducive to pavement cafés, smart boutiques and public spaces. Brownhart Gardens, a non-descript paved area above an EDF substation will be re-imagined to include a pavilion, café and garden. Many of the Grosvenor Estate’s apartments, which are central to attracting new residents to the area, will be available with interior designed space and available on long leases.

Mayfair still has some way to go before it rivals the likes of Chelsea and Belgravia as a residential neighbourhood but with each passing year, more is being done to make it a true community again. Residents are flooding back and Mayfair is once again a place to live and work.

As almost everyone knows, the most expensive “property” on the Monopoly board is in Mayfair. Certainly when the game was launched in Britain in 1935, Mayfair was the most prestigious neighbourhood in London. The grand houses, opulent hotels and chic shops attracted the great and good and the area became synonymous with luxury.

After the Second World War, though, Mayfair’s fortunes reversed. Many of the grand houses were converted into offices and the neighbourhood took on a distinctly commercial flavour. Within a decade, few people called Mayfair home and the construction of the large American Embassy in 1960 on Grosvenor Square only served to confirm that Mayfair was a place to work but not live.

Prime Area Report

However, by the mid-1990s the office consents began to expire and over a million square feet reverted to residential use. ‘slowly many of the grand buildings began to be used as homes again and relatively speaking, for a neighbourhood with as much cache as Mayfair, there was good value to be had. (At that time values were more on a par with South Kensington than with prestigious neighbouring Belgravia).

Investment Market ReportWhilst our core business is residential property acquisitions, we do get asked from time to time to provide advice and assist clients in their search for a commercial investment. Some are ‘trophy ‘style purchases, attractive period buildings in prominent locations with AAA tenants. Favoured areas tend to be traditional strongholds like St James and Mayfair, which remain popular with hedge funds, law firms and private banks. In these locations commercial investment has returned a solid, consistent yield. When we are approached by those looking for a higher return on their investment, our response has been to introduce mixed use buildings combining retail or restaurant use over the lower floors and office or residential accommodation above. With refurbishment or a change of use we look to achieve a yield of 5% or better.

Although residential investment is often positioned as producing the greater potential for Capital growth, we do understand the attraction of a commercial property that can be placed into a pension, creating an income with minimum fuss and administration.

There is no doubt that the economic downfall did create opportunities for commercial investment, but the market has improved and with yields sub 5% in the prime locations and the larger commercial agencies reporting recent rises in commercial rents and forecasting a return to the 2007 peak by 2013, the good deals are hard to find. However, with our roots firmly in the residential market, we would encourage an investor to also consider housing, the yields maybe lower but the capital growth has historically always been good. Commercial property investments should not be seen as an alternative to the residential market but instead as a complimentary part of a balanced portfolio. The commercial market is affected by far more complex economic and market factors so it is wise to seek the right kind of advice if you are planning to invest.

We strive for the very best for our clients and where possible will assist with the creation of a portfolio that encompasses both residential and commercial investments. However, we also partner with some of the best minds in the industry and we will always work hand in hand to ensure that our clients best interests are protected.

Part of the serviceDiscretion Pays Dividends:‘Being in a position to discreetly acquire properties that are not yet on the open market is a big part of the reason why clients engage Robert Bailey property.

When a couple in the music industry, who have their main residence in the Cotswolds recently engaged us to find a London pied-à-terre for them, their main requirements were security and anonymity. We were able to suggest a number of suitable properties, focusing in particular on one in a recent development in Holland Park, which we thought would be perfect. One of the houses there had become available at the very beginning of our search and it was the first property we viewed with our clients. Whilst they were impressed by the accommodation offered, they were unwilling to commit before seeing what else we had to show them. As often happens, they regretted their reluctance to commit so early as the property was sold to another buyer almost immediately. It was at this point that our clients realized that this was exactly where they wanted to be. We worked with a local agent who knew the owner of an adjoining property who was willing to sell. We were able to secure that house for our clients before it was placed on the open market, much to their delight.