Foreign investors are a wealth of work for property law firms as Johannesburg becomes unlikely global hotspot
04 Jul, 2012
Investors from outside the UK are driving instructions around the purchasing of prime property, according to a leading figure in the industry.
Michael Stancombe, co-chair of global real estate at Hogan Lovells, said: “I don’t see any real growth in office take up from the legal sector in the global cities in which the truly international firms operate. We are likely to see quite a prolonged period of stability. Obviously some firms will have to relocate as a result of combinations or outdated/poorly configured space, but I believe that most firms will look at doing deals on existing space rather than incurring the capital costs associated with relocation.”
It claims to be the lightning capital of world, but however dubious this title may be, Johannesburg has avoided being struck by the global property crash as its offices, shops and warehouses outperformed those in every other global city outside of South Africa over the last decade.
Commercial property is a key measure of economic vitality, since strong retail, leisure and industrial performance encourages investors such as pension funds to buy up buildings to earn income through rental income and capital value increases.
Capital value appreciation in Johannesburg has hit 7.5 per cent over the ten years to 2011, compared to 3.6 per cent percent for New York, 2.2 per cent percent for London and -0.1 per cent percent for Munich over the same period.
Like Johannesburg, Sydney, Melbourne and Seoul remain (relatively) untainted by European contagion and investor appetite has been growing in these locations.
However, despite their growth over the last ten years, 2011 saw returns in the more conventional investment locations of London and New York improve considerably, as investors searching for safe havens put increasing pressures on limited stock. Last year, values in London rose by 6.0 per cent, in New York by 8.6 per cent and in Munich by 3.6 per cent – whilst Johannesburg saw growth slow to just 0.4 per cent.
Michael Stancombe, co-chair of global real estate at Hogan Lovells, added: “In terms of deal flow, we have seen huge levels of interest from global investors looking to invest capital in Central London offices. The main driver appears to be preservation of capital combined with London’s safe haven jurisdiction. It is gratifying that the strength of the underlying legal system is recognised in this equation.
“Within that range of capital, we have certainly seen an increased weight of money from Eurozone countries (such as Italy) coupled with growing Sovereign Wealth fund interest. In addition there continues to be significant interest from US investors.”
Peter Hobbs, IPD’s senior director, said:“The picture for global real estate is a tale of havens and have-nots. Institutions want safety, and at the minute, that means low-yielding prime office or retail in safe haven pockets around the world. As a result, there’s a real polarisation growing between the likes of Dublin and Madrid against London and New York, due to concerns over debt or occupier demand.
“Unlike gold or equities, real estate is a living, breathing asset that generates income through its tenants. Properties with good leases held by strong tenants will always be attractive to institutions sheltering from the volatility of global markets. These properties tend to be situated near strong transport links – so it’s no surprise that hubs such as London, New York and Seoul have held up despite the gloom.
“The fundamental reason that investors opt for real estate is because of the high level of transparency around it. By understanding debt and lease structures, it’s possible to have far more insight into the future performance of real estate than other investment classes where pricing is driven by many external factors.”
“Lower levels of national debt across South Africa, Australia and South Korea may also imply less austerity packages in the future – which leads to more economic and stronger occupier demand.
“But while South African returns in Johannesburg and Cape Town have been incredibly strong over the last five and ten years, partly due to strong economic growth in South Africa, this is now slowing as risk averse investors look for safer places for their money.”