EG London Forum: Certain uncertainties

Our expert Forum panel members offer their views on the likely key challenges facing London in 2018 (with Brexit as a given). Mark Simmons reports Colin Stanbridge, chief executive, London Chamber of Commerce & Industry The biggest challenge facing London in 2018 is a growing population – the capital is fast approaching megacity status. “To sustain that growth, London must adapt. That means building the infrastructure to serve an expanded population and to encourage further future investment. One area of strategic infrastructure that perhaps does not get as much attention is river crossings. With our mayor rightly focused on easing congestion and curbing air quality in central London, surely ensuring that as much traffic as possible progresses north/south without having to drive towards the city centre makes sense? Steven Skinner, transactional director, HB Reavis UK The continued rise in the cost of living in London will be a crucial issue in 2018. A solution often touted is for the government to force companies to increase wages, but I do not believe this is a feasible solution. Instead, politicians need to address what makes living in London so costly in the first place. When you consider that Londoners spend, on average, two-thirds of their income on rent, one key area to look at has to be the residential sector – both private and affordable. Oliver Kolodseike, senior economist, Centre for Economics and Business Research A slowdown in immigration is likely to result in difficulties for London’s businesses to find suitable staff, especially in sectors such as accommodation and food services and construction. The share of EU workers in these sectors accounts for more than a quarter of total employment. With uncertainty over their future status growing and the relatively weak pound lowering the value of remittances, it is likely that some EU workers are discouraged to move to and work in the UK. John Dickie, strategy & policy director, London First We need to get real progress on Crossrail 2. The case has been made – it is essential to keeping the South East moving and could unlock development to deliver 200,000 new homes. The challenge now is to put in place a package to pay for the project, and we are looking with our members at the role London must play. Part of the challenge in raising infrastructure finance locally is that London government has very little control over its finances or the taxes raised here.  To help investment across the country, the government should devolve some of its powers and resources to enable cities and regions to make the right decisions for them. Greater control over the revenues generated by local taxes – such as on property – would give local institutions greater incentive to drive investment and growth and, critically, the means to fund it. Simon Cookson, real estate partner, DLA Piper [caption id="attachment_875106" align="alignright" width="150"] Simon Cookson[/caption] Something that might already be happening in London’s core office markets and which might become more prevalent in 2018 is the office occupation cycle moving into regression. Certainly we have been seeing occupier clients downsizing in the market and exercising existing lease flexibilities better to fit their occupational needs. Anecdotally, some softening of effective rents, increased incentives and greater flexibility are all on offer in different mixes in selected opportunities. Bill Page, business space research manager, LGIM Real Assets The market was already feeling a little late cycle before you know what. A cyclical slowing of leasing activity coinciding with the delivery of new space can still be expected, adding pressure to rents. Counteracting this will be Crossrail. It is operational next year. That does not surprise those of us who have used it as a presentation staple for the past decade, but its imminence will hit home beyond our world, with activity gravitating towards new nodes. A gradual increase in gilt yields may catch some out. Causes may have some roots in “political events”, but property has become accustomed to a low risk-free rate over the past seven years. In low-yielding London this could cause hesitation. Letting and renewing space with an EPC below E becomes illegal in 2018. London is not immune – there will be surprises, and in core markets, not just at the edges. Iain Painting, senior planning partner, Barton Willmore The underlying issue facing London is providing the homes to house the workers to drive the economy. From this flow questions around employment land supply, transport, air quality and sustainability in the broadest sense. Changes in market forces and politics will be most noticeable in 2018 following the expected release of a draft review of the London Plan late in 2017. So 2018 could be a challenging year. Andy Martin, chief executive, BNP Paribas Real Estate Advisory UK Crossrail will be fully operational by the end of 2018. In part, the new line will help to curb serious congestion on other parts of the network, but perhaps, more importantly, it will also play a key role in really completing London’s transformation to a polycentric city. It is vital that this new organ for the city is not treated as a cash-cow by authorities seeking further revenue.  Perhaps the biggest risk to London remains its housing market. The city thrives on its attractiveness to talent. And talk of automation aside, this human capital is its greatest asset. Build-to-rent is undoubtedly part of the solution and London as a whole needs to do more to galvanise and promote this evolving market. Failure to act on housing provision aligned with employment needs, including the introduction of PRS, could in time, prove our capital’s greatest folly.