Analysis of historic performance through economic downturns reveals best-in-class resilience to reassure wary investors
Prime central London real estate (PCL) is the most resilient and best-performing segment of the UK property market, according to research by CapitalRise, the online property finance marketplace. The study of market performance found that PCL recovered its value as much as four years quicker than the rest of the UK property sector following the two most significant economic downturns since 1980. The data also indicates that PCL would have yielded the best returns for investors over the seven-year cycle typical in the property market.
PCL prices have dipped in recent months, but Uma Rajah, CEO at CapitalRise, believes investors should be confident in the sector’s ability to repeat previous recoveries: “Prime central London property prices tend to follow a seven-year cycle. Our research should help to reassure investors that PCL is the most resilient property market to invest in, and that it is likely to bounce back strongly from this softening of demand as Brexit causes temporary uncertainties.”
Following the 1989 downturn, triggered by the recession and Black Wednesday, PCL property values returned to their pre-downturn level in just 23 quarters, versus 35 for London-wide property and 34 for UK real estate as a whole – three years quicker.
PCL ended the seven-year period beginning with that downturn up 47 per cent – the only segment to return a profit – compared to net declines of 3.7 per cent for London real estate overall and 0.67 per cent for UK property as a whole. An investor putting £1,000 into property at the start of the downturn would have made a profit of £470 on PCL over the seven years, compared to losses of £37 and £6.70 backing London or UK-wide property respectively.
PCL’s recovery after the downturn of 2007, caused by the global financial crisis, was significantly quicker, at just 10 quarters, and also further outstripped the rest of the market. London property took 21 quarters – three years more – to return to its previous level, while the UK as a whole took 27 quarters, four years slower.
The seven-year cycle initiated by this downturn saw PCL up 40.5 per cent overall, more than twice as strong as the next-best performing segment. London-wide property returned just 19.4 per cent, and the UK market as a whole a loss of 3.1 per cent. £1,000 put into in PCL at the start of the cycle would have returned a profit of £405, set against £194 for an investment in all London property and a loss of £31 on UK-wide real estate.
Rajah continued: “With low interest rates meaning returns on cash savings are close to zero, investors at all levels should be looking at alternatives. Property is often considered a safe investment – and London property in particular, with demand generally high as a result of the UK’s convenient location for global business and thriving cultural scene. Prime central London property is the most resilient segment of the market, and investment opportunities in this area are becoming more and more accessible.”