March 5, 2014
One of the subjects touched on in the first episode of Evan Davis’s BBC documentary series about the economic distinctions between London and the rest of the UK Mind the Gap was the impact of investment by the global super-rich into London property. At one point he asked the Malaysian investor behind the £8 billion Battersea Power Station redevelopment whether he’d considered investing in other cities in the UK. The response was a straight no, but the accompanying glance said rather more. London is no longer a British city but one that belongs to the world, it said, so any comparison with Manchester, Birmingham, Bristol, Leeds, Cardiff and Edinburgh is meaningless. You might disagree with this point of view, but a raft of new data appears to make it very evident indeed that London is now shaped by global plutocrats in a way that cannot be mirrored in the rest of the UK.
So, a new report from Reuters highlights how the wealthiest people in the world, who already own luxury mansions in cities like London, are shifting their attention to commercial property, retail and hotels. The report identifies a global super-rich elite whose fortunes hit a combined total of $20 trillion in 2013. It claims that a move into commercial property comes as wealth levels rebound after the financial crisis. The wealthiest individuals have watched as their home values in London and Monaco have soared, prompting them to look for investments that offer higher returns.
According to the report compiled for Reuters by research group Real Capital Analytics (RCA) this group of wealthy individuals spent $11.2 billion on hotels, offices, warehouses and shops globally in 2013, up dramatically from $7 billion in 2012 and three times the amount spent in 2008.
Such high net worth investors, most of whom come from Asia or the Middle East and made their fortunes in manufacturing among other sectors, often already own homes in cities such as London and Hong Kong, said Jeremy Waters, head of international investment at UK-based property consultants Knight Frank. “They may be moving money because of repercussions from the Arab Spring, or internally the families are looking to diversify across the globe,” he said, adding that France, Germany and Spain were popular alongside Britain in Europe for property investment.
In its annual wealth report, Knight Frank claims the combined wealth of the world’s 167,669 ultra-high net worth individuals (UNHWI) had risen to $20.1 trillion last year, from $19.5 trillion in 2012. It defines an UHNWI person as someone who has $30 million or more in net assets excluding their principal residence.
Recent deals by these wealthy individuals include the purchase of retail properties worth more than $350 million around London’s Queensway district by a club of investors that included Brunei’s royal family, and the 44 million euro ($60.60 million) purchase of BMW’s logistics center in Niederaichbach, near Munich, by Tilad, a company that invests on behalf of Arab families. The biggest UHNWI deal last year was the $1.36 billion purchase of a stake in the General Motors’ tower in New York by the family trust of Zhang Xin, chief executive of office landlord Soho China and Brazil’s Safra family, RCA said.
Knight Frank said 40 percent of respondents to its annual wealth survey of 600 private bankers, who represent 23,000 UHNWIs on average worth $68 million each, said their clients had increased their exposure to commercial property in 2013 while 47 percent said it was set to rise further this year. Office block deals were especially gaining popularity, the RCA data showed. The average price paid for an office property rose to $162.7 million in 2013, from $63.9 in 2012 and $78.5 million in 2007, the year before the crash.
What this all means for the millions of non-UHNWIs and companies who employ them in cities like London is a general upward pressure on the costs of living and operating. According to a new report from property consultancy Savills, the UK capital is the world’s second most expensive city in the world for companies to locate employees, trailing closely behind Hong Kong. According to their most recent survey, the cost of renting living and office space for one employee in London has reached $115,000 (£68,000) up by 18 per cent in the last five years and two per cent since 2013.
Yolande Barnes, director of Savills World Research said: “These findings go some way to demonstrating the rebalancing of world economies as more mature ‘old world’ cities demonstrate stable growth in this recovery cycle. ‘New world’ city growth has slowed markedly, albeit this trend has been slightly counterbalanced by the emergence of new world city real estate markets – notably Rio de Janeiro and Dubai.”
For Londoners, it’s not all about the expense. According to Savills, London offers some of the biggest discounts for creative firms with less money to spend on offices, while only Paris and Sidney had no discount for creative space, meaning that a tech company will pay more for live-work space in Paris than in any other world city, including Hong Kong. In Hong Kong, the cost of living and working space per employee averaged at $123,000 (£73,000), 1.6 times more expensive than Singapore, 3.8 times more than Shanghai and some 4.4 times more expensive than Mumbai.
But, then again, it all depends how you look at these things. According to the Economist Intelligence Unit’s Worldwide Cost of Living Survey, a relocation tool that uses New York city as a base and focuses on day to day living costs, Singapore is the world’s most expensive city to live in 2014, while London is only 15th. The top five most expensive cities to live in are made up by Paris, Oslo, Zurich and Sydney. They too will be affected by the globalised plutocracy.