RCA Insights

Change in Central London Buyer Mix Spurs Liquidity Drop

By on March 12th, 2018

Market liquidity in Central London has dropped to its lowest level for seven years due to a substantial change in the buyer mix, a preliminary update of RCA’s Capital Liquidity Scores indicates.

The Capital Liquidity Scores are based not just on the size of a market, but also on the diversity of the active buyer pool. The scores reward markets where the top 200 largest players in their geography, and globally, are active. In Central London there has been substantial drop in activity by these market makers since the Brexit vote in June 2016. Since then, the market has been sustained by an influx of money from non-established players in the market – notably private capital from Hong Kong.

The count of active buyers has also decreased, with the deal count dropping back to 2009 levels. This also negatively affects liquidity scores.

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The lower score emphasizes how, despite a recovery in property investment volume in Central London, the market has changed. The buyer mix has altered and this has implications for both liquidity and pricing. According the RCA CPPI, commercial property prices in Central London have increased by 6% since June 2016, but in the central areas of the German A Cities they have grown by 35%, in Central Amsterdam by 33% and in Central Paris by 13% over the same period.

To put all this in context, Central London remains one of the most liquid markets in the world, ranking fifth at the end of 2017 according to preliminary data. But it has fallen behind Boston, Berlin and Paris’s Western Crescent and La Defense market since the Q2’17 liquidity scores update.

The other market in the top five is Manhattan, which ranks first. Manhattan investment volume has been on the slide since the middle of 2016; however, the market has not recorded the fall in capital liquidity that Central London has. Why?

The reason is the buyer mix is largely unchanged and it continues to score well on the presence of the regional and global market makers. Meanwhile, the fall in volume is not sufficient to push it down the rankings: investment in Manhattan last year was still double that of third-placed Boston.

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Regarding Central London, what can observers take away from the liquidity score decline? The market remains attractive on a comparative basis and still ranks very highly, but a change has occurred. A reliance on a smaller pool of non-institutional buyers and fewer, larger deals has negatively affected liquidity and contributed to an underperformance in pricing in comparison with some other major European markets.

If you are an RCA client you can access the RCA Capital Liquidity Scores methodology document on the RCA website. If you are not yet an RCA client, contact us to learn how to receive the upcoming report in April 2018. 

Real Capital Analytics will be at MIPIM in Cannes, France, March 13-16. 

Tom Leahy

Tom Leahy

Senior Director, EMEA Analytics

Tom joined RCA in 2014. In his role as Senior Director for the EMEA region, Tom is responsible for the development and expansion of the market analytics service for RCA’s European clients.

Prior to joining RCA, Tom was an Associate Director and then Head of Research at UK-based property consultancy, Lambert Smith Hampton. He started his career as an analyst at research consultancy Property Market Analysis (PMA).