No Stalling Yet

Developer Capco and Hong Kong partner KFI demonstrate that Brexit hasn’t dampened the taste for London investments.

Developer Capco and Hong Kong partner KFI demonstrate that Brexit hasn't dampened the taste for London investments.

The city of London continues its regeneration in an attempt to create more homes, with Brexit (set for October 31) looming on the horizon and despite the Sterling flirting with 20-year lows. The potential for further losses in the event of a no-deal Brexit exists, and though it's unlikely to fall to the miserable levels of the 1980s (a record low of GBP1.05 to the US greenback in 1985), the days of record highs (GBP2.86 in the late 1950s) are history. Regardless of worst-case scenarios that may be out there, London in particular needs homes, and in July, “Rental demand [was] high and in fact outstripping supply in many areas,” said Benham & Reeves' August rental report. That's good news for investors, who can still expect short void periods and rising yields. Stock is still the challenge, but the latest developer to throw its hat into the regeneration ring is Central London specialist Capital & Counties Properties (Capco).

Everything Old

London has relied heavily on massive regeneration projects over the last decade or so to supply “new” land that can help meet the demand that continues in the city. King's Cross, White City, Greenwich Peninsula and Croydon are just a few of the areas targeted to supply new recreation facilities, retail, offices and homes. Regenerations also appeal to investors, as tenants often prefer new properties and are willing to pay rental premiums to secure them according to B&R. Locations such as West London, beyond Kensington, are in demand, but unable to meet it. “Tenancy renewals are running at over 90%, adding to the shortage. As a result, apartments are letting as soon as they come onto the market [and] achieving full asking rental,” said B&R. Naturally traditional hotspots in the core zones—westminster, The City, increasingly Southwark—remain popular, but investors must also be aware of new investment regulations. “The government has really gone to war with buy-to-let investors of late and a consistent string of detrimental changes to the sector through stamp duty increases, tax relief changes and a ban on tenant fees has had the desired impact of denting industry sentiment and dampening appetite for future investments due to a reduction in profitability,” said B&R director Marc von Grundherr. For institutional investors, however, von Grundherr calls it a “blip,” and notes residential properties for leasing remains the asset of choice. “Despite a government backed clamp down, [bricks and mortar] remains a lucrative business and one that continues to gain the backing of those that are on the frontline.”

Not only do regenerations supply new land, they also supply a character that investors are increasingly seeking in real estate. Two of the most prominent currently are the rejuvenation of Covent Garden and the massive, GBP12 billon Earl's Court regeneration.

Renewed

Once a tourist-trappy corner of WC2 notable for tacky trinket shops—when it wasn't rundown and derelict prior to that— Covent Garden has found new life anchored by the landmark market. Currently owned and operated by Capco, which inherited the estate after demerging from Liberty International, it was initially a retail asset. Now it includes The Floral Court apartments to complement Capco's commercial placemaking and has become one of London's most popular destinations.

“The brief for Covent Garden was to grow it and have a dedicated retail strategy, have it right from the start and build it from the ground up. That involved buying in building by building, and [Floral Court] we bought in 2012,” explains Capco's head of sales James Lane. “In simple terms, the historic buildings we've kept, refurbished and converted. The poorer quality 1970s and 1980s buildings —which this sits on—were demolished.”

Floral Court is a boutique property featuring just 31 flats (beginning at GBP1.3 million or HK$12.7 million) designed by Kohn Pedersen Fox Associates (KPF). “Restoring Covent Garden's residential heritage was central to the vision for The Floral Court Collection and the penthouse offers a rare opportunity to live in a beautiful, world class destination which marries global and independent

[Bricks and mortar] remains a lucrative business and one that continues to gain the backing of those that are on the frontline.

brands with history, culture and the arts in London,” says Michelle Mcgrath, director of Capco Covent Garden. The low-key building is surrounded by some of the city's best dining (Frenchie, Cora Pearl) and independent retailing—as well as brands such as Tom Ford, Chanel and Tiffany. Floral Court is a lifestyle offering, with services such as a personal shopper to complement the concierge and the building's in-house amenities. The aforementioned, newly launched penthouse features interiors by British design wunderkind Sophie Ashby (GBP20 million, interior outfitting negotiable). Investors who choose to head west will arrive at Capco's second major regeneration: Lillie Square. Located at the top of the Terry Farrell-masterplanned Earl's Court and developed along with Hong Kong-based KFI, the project will ultimately feature over 800 one- to three-bedroom apartments, penthouses, and four- and five-bedroom townhouses pivoting on a new garden square and Andy Sturgeon's Lost River Park. Inside, an 18,000-square-foot Richards Basmajian-designed clubhouse incorporates a lounge, children's games room, fully equipped and staffed spa and gym, swimming pool and cinema/media room. Sitting a few minutes from Earl's Court tube station, the city is within striking distance, and connections to Euston Station, St Pancras Station and Heathrow can be made in as little as 20 minutes. Lillie Square offers a price point ideal for first time investors, and based on past regeneration projects, values and rental yields will rise. A bonus for some: a view of Chelsea FC Stadium.

The current phase comprises of 186 flats at Lillie Square East, with homes ranging from 495 to 1,379 square feet. Prices begin at approximately GBP1,500 (HK$14,500) per square foot.