Monday, 8 July 2013
How much longer for the property bubble?
The London commercial and residential markets for property have been going at a fair clip this past 2 years, although not without their failures along the way. Minerva plc, now defunct, built a lovely huge office space right opposite Cannon Street which is has managed not to let for 3 years now - quite some feat for an investment of that size in such a prime area. In the property market, as much as the prices in London continue to rocket upwards, they were not enough to save the bad buys of projects such as Chelsea Barracks which has been put on hold.
Nonetheless, with low interest rates and good property rights in the UK, a bonanza has generally been underway. How long can it last though. The obvious point is that the rise in interest rates will kill-off the huge speculative buys. But if new, wealthy players like Ping An are still entering the market then it will support prices for some time yet. This deal for Lime Street is quite a good one too, the rent should mean a yield of over 5% at this price which is a good return on your money for long-term commercial letting, the German fund selling originally wanted more like £300 million, so a 10% discount was negotiated. So the property boom looks set to last a while yet and with the flow of work to support industries and boost to potential construction work, this will be a big factor in powering forward the economy for the next year or two at least.