Sunak makes the case for investing in the UK: is he right?
Making sense of the latest trends in property and economics from around the globe.
6 minutes to read
CEOs including Blackstone's Stephen Schwarzman, Aviva's Amanda Blanc and JP Morgan's Jamie Dimon will be among more than 200 top leaders and investors that will join Prime Minister Rishi Sunak for a 'Global Investment Summit' at Hampton Court Palace later today.
The gathering provides the backdrop for an announcement of £29.5bn in new UK projects and capital committed by "the world's leading investors", triple the sum raised at the last Global Investment Summit in 2021.
Fresh from last week's (sort of) tax cutting Autumn Statement, the Conservatives are eager to paint themselves as the stable, low-tax, pro-business party ahead of an election that could happen as early as May. The gathering also appears part of a long-term strategy to alter what Sunak has called a "creeping acceptance" that Britain is in decline - a narrative that started with Brexit and was given top spin this year by the watering down of key climate change policies and the scrapping of the northern section of HS2.
A compelling narrative
The latter narrative can be compelling - magazine writers certainly think so - and there's still a lot we don't know about our long-term relationship with the European Union more than seven years since the vote to leave. However, the data does suggest that the nation-in-decline story is overdone at the very least.
The press release for today's Global Investment Summit is as gushing as you'd expect, but it accurately paints the UK as a pioneer in key sectors including technology and life sciences. The UK currently sits second in EY’s annual ranking of European countries by their ability to attract Foreign Direct Investment (FDI) - that's behind France and ahead of Germany. The UK continues to lead Europe when it comes to tech.
Granted, the effect of Brexit is meaningful - UK's share of European FDI projects peaked at 21% in 2015 and has since fallen to 16%, but the UK attracted more new FDI projects last year than either France or Germany. The UK also consistently delivers more total jobs and jobs per project than Germany and France – trends consistent with the UK’s pivot in strategy to focus on value over volume when attracting FDI.
London saw a 24% decline in new projects (in part due to the tech sector's exposure to higher interest rates) yet the city still secured more projects than all but four whole European countries (France, Germany, Spain and Turkey). More than four in ten investment decision makers surveyed said they planned to establish or expand operations in London.
The London story
London is moving through a period of renewal and reinvention, "but on the big questions of employment, global financial significance, and the ability to successfully fund and incubate new ventures, London’s dominant position is intact, alive, and well."
That's according to the first in a series of insights by Knight Frank's head of commercial research Will Matthews and partner in the private office Sarah May-Brown. Broader foreign investment themes correlate with trends in commercial real estate - London remains the top destination for overseas capital, with almost £5bn deployed in 2023 (see chart).
Investors are buying into London's longevity, but there are a few other key factors driving purchases. Unlike many other global cities, London offices did not see the sharp decline in yields from 2016 onwards and have been quicker to reprice post-covid. With favourable currency effects, this has equated to a material advantage for overseas buyers. Meanwhile, we expect prime rents will continue to grow as occupiers compete for a finite amount of high-quality space. Many will view the combination of factors as supportive of total returns over the coming years.
To be sure, London is grappling with the same questions that many large cities face: how to tackle the scarcity and cost of housing, how to upgrade buildings to more sustainable standards, and the need to adapt infrastructure to changing societal requirements. The inflation story also has further to run and an election looms on the horizon - yet as the report notes: "in recent years, those who were first to return after the Global Financial Crisis were rewarded with the strongest investment performance, as did those who continued to develop with the luxury of weak competition. It may only become apparent with hindsight, but the next chapter of this story is starting now."
US buyers in France
The French government saw the opportunity that Brexit presented and embarked on a smart set of reforms to boost the country's attractiveness to overseas investors. It has been Europe's leading destination for foreign investment since 2019, according to EY.
Those reforms continue, according to details from Kate Everett-Allen, head of global residential research at Knight Frank. Last week, France and the US signed a special mutual agreement akin to the French ‘talent passport’ that will allow investors easier access to visas and residency permits. Unlike Golden Visa initiatives in other European countries, purchasing property does not qualify for a long-stay visa. The rule is tailored for investors, defined as those establishing a business, investing in one, or making a financial commitment to the country, without a specific investment threshold. The move follows the decision by France’s Senate to relax the 90 out of every 180-day rule for British visitors.
"This will hopefully have a domino effect across Europe helping reverse some of the reticence we’ve seen among a new generation of US and UK buyers eager to secure a property in the EU," says Mark Harvey, Head of International Residential at Knight Frank.
Knight Frank's latest data suggests that US purchasers tend to favour Paris, especially the 7th and 16th arrondissements, the French Riviera, notably the Caps and sought after inland enclaves around Mougins and Valbonne, as well as Provence.
Snow-sure
A third of respondents to our latest Ski Property Report sentiment survey said the long-term resilience of a ski resort is very important to them and influences their decision when it comes to where to buy.
In a new episode of Intelligence Talks, we look at the impact of climate change on Alpine property markets. Anna Ward speaks to Kate Everett-Allen and Knight Frank's international residential partner Alex Koch de Gooreynd.
They discuss how ski resorts are innovating to respond to snow shortages as well as driving more tourism through a broader range of year-round activities. They also share which resorts are likely to be the most resilient in the long-term, drawing on our analysis of ski areas over 2,000 metres with north-facing slopes across key French and Swiss resorts. Listen here, or wherever you get your podcasts.
In other news...
Investors dump dollar in bet that US rates have peaked (FT).