London Update

April 2007

London - 'The Capital of Capital'
Primelocation's Indexed Average Sales Prices
Economic Outlook
Market Comment
Other News
April Highlights
About Young Group

London - 'The Capital of Capital' – Paula Hawkins

In the nineteenth century, it was Paris, in the twentieth, New York, but London is the twenty-first century capital of the world. Proclaimed recently by the (London) Times as the “coolest city on the planet” and by Time magazine as “the capital of capital”, London is enjoying a period of remarkable growth, productivity and popularity.

Russian and Indian billionaires are snapping up prime slices of London property, while ordinary young Europeans – from both east and west - flock to London to find the best jobs. London beat Paris to win the 2012 Olympics and it has comprehensively trounced Frankfurt in the battle to become the European financial centre. Even New Yorkers are worried. Last year, New York’s mayor, Michael Bloomberg, commissioned a report from McKinsey, the consultancy firm, to explain why international financial business was leaving New York for London.

New York

What is it about our capital? It is by no means the largest city on the planet: that accolade goes to Tokyo, with its population of a little over 28 million. New York is fifth largest, with 16.6 million. European capitals are much smaller: Paris’ population is 9.6 million, Moscow’s is 9.3 million, while London comes in as only the world’s 25th largest city with 7.6 million inhabitants.

Nor does it top the rankings for quality of living: Mercer’s 2007 ranking, which takes New York as its ‘base’ city with 100 points, put Zurich first, at 108.1. Frankfurt comes in seventh at 107.1, while Paris ranks 33rd with 102.7. London comes 39th, narrowly beating New York City. But – as Mercer itself points out – quality of living does not equal quality of life.

London may be chaotic and confusing, but it certainly is exciting, too. It has always been a strong cultural centre, with its free museums, cheap concerts and good theatres, but it is enjoying a particularly fertile moment, thanks to new plays from the likes of Tom Stoppard and David Hare; and new events such as the Frieze Art Fair, which takes place in Regents Park in October. London is just cooler than it used to be. The food is good and you can now get a drink after 11pm (although you may have to pay for the privilege). Marc Jacobs opened his first UK store in Mayfair in February - and you can’t say cooler than that.

London is seen as a truly international city, home to everyone

But there is more to London’s renaissance than simply enjoying a kind of ‘cool Britannia’ moment. London is seen as a truly international city, home to everyone. While New York is American, Frankfurt is German and Paris is French, London is not really British, or even English. Tina Brown, a former editor of Tatler, Vanity Fair and the New Yorker described London as “like a nation state”. Around 40% of London’s residents were born outside the UK, and more than 300 different languages are spoken here. While New Yorkers may claim that their city is more of a true ‘melting pot’, while London is a conglomeration of different cities, this is less and less the case. Areas that were once associated with a single ethnic group or nationality are becoming increasingly diverse – just ask the residents of Hackney or Lambeth.

London

London’s public transport infrastructure was voted the best in Europe in a survey of visitors last summer. Whilst it may not feel like it during the two rush hour peaks of the working day – both tube and bus frequency and service have certainly improved dramatically over the past few years.

London traders are earning higher wages and securing bigger bonuses than their counterparts on Wall Street

Another is the ‘light touch’ regulatory regime of the Financial Services Authority (FSA), which has also come to be regarded as preferable to the more draconian Sarbanes Oxley rules which were implemented in the US in the wake of the Enron and Worldcom scandals. As a result of our self governing style of accounting standards, more and more companies are choosing to float in London than in New York. In 2001, 57% of all stock market flotations with a value of more than $1 billion were in the New York. Last year, just 16% happened there, while Europe’s share of the largest IPOs has risen from 33% in 2001 to 63% in 2006.

But it has been London, not Frankfurt, that has attracted the lion’s share of new business. Fears that the UK’s decision not to join the Euro would mean that Frankfurt would inevitably steal London’s crown as Europe’s financial capital have proved unfounded: the UK accounted for 35% of the EU’s total institutional financial service business in 2005.

More business in London has meant more jobs: the City’s financial workforce grew by 4.3% between 2002 and 2005, at a time when New York lost just under 1% of its financial headcount. The number of City jobs reached 335,000 in 2006, up around 12,000 on the previous year, and the Centre for Economics and Business Research expects that figure to grow by another 4,000 this year.

London traders are earning higher wages and securing bigger bonuses than their counterparts on Wall Street, too. According to Napier Scott Executive Search, the firm of head hunters, London traders’ salaries and bonuses are now up to 50% higher than those in New York.

London’s new status as a ‘World City’ is about more than just facts and figures, it is more tangible, it is something you can actually see. The capital’s skyline is changing dramatically: 30 St Mary Axe (aka the Gherkin) is just the start. Over the next few years we will see the arrival of the Shard at Tower Bridge, Broadgate Tower, 201 Bishopsgate and a host of others. It is forecast that by 2015, London will have up to 20 skyscrapers.

London’s status has meant that it tops the league table as being the most expensive place on earth to purchase residential property. According to a 2006 report from Knight Frank, the price of a square foot of prime London property is £1,750, compared with £1,100 in Tokyo, £1,050 in New York and £950 in Paris. The price of ‘super prime’ property is even higher, with prices ranging from around £2,000 to £3,000 per square foot.

The Gherkin

While the soaring price of London property is an indication of the city’s desirability, and while eye-watering prices might not deter the likes of foreign billionaires, such as Lakshmi Mittal and Roman Abramovich, it does make life harder for the rest of us. The Land Registry puts the average price of a property in London at £319,000 – more than 10 times the average Londoner’s wage. However, both local authorities and the government are offering help for first time buyers, with key workers in the south-east most likely to qualify for help with a property purchase.

It is not just property that is expensive in the capital. Last year’s Mercer Human Resource Consulting cost of living survey found that the most expensive city in the world was Moscow, ranking 123.9. London came fifth with 110.6 points, just behind Seoul, Tokyo and Hong Kong. New York ranked 10th, with 100 points.

Forecasts suggest that London’s economy will continue not just to grow but to outpace the rest of the UK: a report from PriceWaterhouseCoopers suggests that the London economy will grow by some £43 billion by 2012 and could reach £350 billion by 2020 (size in 2006 was £198 million). From a global perspective, London’s economic, social and commercial standing as well as geography, will ensure that it continues to dominate in terms of the place on the planet that the very best talent will want to work, live and invest.

Written by Paula Hawkins – Paula freelances for The Times, Sunday Telegraph and Evening Standard.

Primelocation's Indexed Average Sales Prices

Prime and mainstream property markets (Base - March 06)

Click to view a larger image

Economic Outlook

	As discussed in last month’s London Update, it seems almost inevitable that we are going to see a quarter point rate rise in May’s Monetary Policy Committee (MPC) meeting, but there is growing evidence to suggest this will be the top of the current rate cycle. For the first time in the MPC’s existence, the governor of the Bank of England had to write to Gordon Brown to explain why inflation had risen above 1% over the 2% target (March 3.1%) and many have taken this as a sign of hard times ahead, but that is likely not the case. In his letter, Mervyn King commented that, “inflation has recently been very volatile from month to month,” and there are suggestions in the letter that the March Consumer Price Index was skewed by a sharp rise in furniture price inflation – jumping from 1.5% to 5% - as retailers attempted to dupe us with spectacular Spring reductions.
	His letter also claimed the outlook for energy prices was looking good as previously announced price cuts in this sector will help to bring down the CPI. And it is worth noting, despite the March figures, the CPI still averaged at 2.9% over the first 3 months of 2007, exactly the level the MPC predicted in its February Inflation Report, justifying King’s comment to the Chancellor that, “this latest news seems unlikely to alter the broader picture.”
	Another reason it is unlikely interest rates will rise any higher than 5.5% is the strength of Sterling, although a stronger pound undermines UK exports, many raw materials, such as oil and metals, are quoted in dollars, so a stronger pound could turn out to be a blessing in disguise as many firms find their input costs reduced. And Gordon Brown certainly hopes this to be the case, with elections looming and the Prime Minister about to hand over power, the last thing Mr Brown wants is a rash of bankruptcies and home repossessions, which could well be the case should rates rise significantly.

Market Comment

The shortage of suitable housing available to buy is underpinning the UK property market, says Martin Ellis, the Halifax’s chief economist, “House prices continue to rise in a tight market but there are emerging signs that pressure on householders' finances, partly due to the rise in interest rates since last August, is dampening housing demand. We expect the higher level of interest rates, negative real earnings growth and above inflation council tax bill increases to lead to slower house price growth over the coming months. Sound economic fundamentals and an ongoing shortage of housing supply will, however, continue to support house prices."

And this theme is echoed by Primelocation.com, who claim central London property prices rose by 29.3% over the past 12 months and North West London enjoyed property growth of 37.5% over the same period. Ian Springett, Primelocation’s Chief Executive commented, “Despite the desperate shortage of stock in the capital, demand from all sides is as strong as ever. The continuing imbalance of demand and supply has culminated in massive price growth, which is not just limited to the exclusive areas of Central London any more and is now being witnessed across the whole of the capital. Demand from overseas buyers remains the primary market driver, while significant amounts of bonus money from City employees has been pouring into the market since the turn of the year. Even the seasonal uplift in stock has failed to quash the tremendous surge in price inflation now being achieved across London.”

Other News

Tesco, far from being satisfied with being the UK’s biggest supermarket, revealed last week that it has a property portfolio worth £28billion, making it the largest property company in Europe. Profits from this portfolio alone totalled £139million last year (the same figure some analysts are expecting Debenhams’ 129 stores to generate in profits this year), further boosting investors’ returns, who must surely be saying to themselves, “Every little helps!”

April Highlights

Property Portfolio Management

The umbrella service that links each of the Young Group divisions. The team have been busy producing annual portfolio reviews for clients with properties that have completed. Additionally self assessment tax schedules are in production and will be distributed over the coming weeks.

Young Property

The Landmark development is still selling well, with close to 60% now being sold since the release last December. One of our earlier developments, Union Wharf is also nearing completion and everything is progressing well.

Young Finance

The past month has been Young Finance’s biggest month to date with regard to mortgage applications.

Young Lettings

Nicola McQueenie has recently joined the Young Lettings team as Consultant.

Young Furnishing

Managing Director Nargis Rogovsky has just returned from an international sourcing trip. The team are also busy ordering furniture for the Union Wharf completions and lining up the delivery and installation teams.

About Young Group

Young Group was established in 2003 and has since transacted in excess of 1,000 apartments, with a retail value of £360m.

Young Group specialises in providing Property Portfolio Management services to private investors, identifying the best off-plan opportunities in London on their behalf and managing the entire investment process - from sourcing the property through to financing, furnishing and letting.

Young Group owns all the property it sells, and also retains around 10% of properties for its own portfolio. As the principal in every transaction, Young Group does not realise any profits until completion, giving investors 100% confidence that properties will ‘value up’ and that financing will be secured.

In 2006, Young Group sold in excess of £150m worth of property, with over 50% of units bought by repeat Young Group investors. The Group’s lettings division, Young Lettings, has successfully let all investors’ apartments shortly after completion.

For each property exchange, Young Group donates £50 to Norwood, the children and families charity that provides support to families facing social difficulties, and to Groundworks, the environmental regeneration charity.

t:  +44 (0)845 356 1000   e: info@younggroup.co.uk