According to The City of London Corporation, London is a ‘top global financial centre’ with a well-established reputation for being one of the most international and connected financial centres in the world.
Nearly 40-years ago, the ‘Big Bang’ deregulation of the City and introduction of electronic trading established London as a leading financial centre, second only to New York.
This pivotal moment was a catalyst for financial innovation, improved market efficiency and enhanced competition. Today we face a similar challenge. The City must adapt and innovate because it cannot afford to rest on its laurels.
London maintains its position as second in the Global Financial Centre league table for human capital and reputation, second to New York. It attracts a diverse range of investors, from international ultra-high net worth individuals to national and global pension funds, institutions and corporations.
Why the City?
As the jewel in the UK’s economic crown, generating 25% of the nation’s GDP, the future of the capital is critical to both national and international markets and economies. However, if London is to continue to hold its position at the top of the global financial centre’s league, we must curate and futureproof the City’s offer. London maintains its top position due to a mature, transparent market; easy access to capital; low entry and trading costs, including lower stamp duty than competitors; stable political, regulatory, and economic systems; global significance; use of English; and a relatively weak pound that draws offshore investment.
The prognosis for the future of London and the City is positive, especially when compared to other financial centres and countries under pressure from global trade tensions. Many have suggested that the UK could become a refuge for capital seeking to weather the current global trade wars and to take advantage of the Government’s commitment to economic growth. Our strong relationship with the current US administration also underpins the attractiveness of the City and the UK. Additionally, the US’s move away from sustainability and ESG, which contrasts with the global focus on tackling climate change, may also play to our advantage.
Notably, London appears almost immune to the economic strategies of the current US administration. This is because only 3.2% of its exports are goods, while over 75% of its almost $1 trillion economy comprises services such as banking, insurance, technology and tourism, none of which are currently affected by tariffs.
In this context, London continues to present an attractive investment prospect. The principal property asset classes Currently exciting City investors include:
- The office sector - with a new focus on ESG, amenities and accessibility
- The living sector - particularly hotels, in light of the recent relaxation in the City’s approach to planning together with the emerging sectors such as student housing and Build to Rent (BTR)
- Industrial & logistics sector - especially urban logistics where speed of delivery of goods and food is a critical requirement
- The retail sector - London’s underlying attraction to tourists will continue to be a catalyst for this market.
The structural changes the sector experienced in recent years have led to amenity-rich assets, which are increasingly in demand by young consumers who are drawn to experience-led activities
Sustainability
Climate change related legislation is a major catalyst for all sectors, especially in light of forthcoming legal obligations to omply with Minimum Energy Efficiency Standards (MEES) and Energy Performance Certificate (EPC)* regulations, and ESG requirements. As the focus on sustainability is embedded into the UK property sector, this bodes well for our global competitiveness in the light of the Trump administration’s views on net zero and climate change.
The financial advantages of marketing energy efficient buildings in prime Central Business Districts (CBD) locations are clear. This is benefiting landlords because sustainability literate tenants are willing to pay a premium to occupy these premises. Current and prospective tenants understand the benefits of green buildings; the cost savings associated with them and the perceived value of a demonstrable green philosophy to all their stakeholders including employees).
Demand for such space exceeds supply resulting in the emergence of a two-tier market where rents are already differentiating prime stock from secondary stock. The increasing focus on ESG from both landlord and tenants will accelerate this differential as costs become prohibitive.
Future Proofing London
To ensure London, and consequently the UK, retains its leading position at the top of the capital market league table, the City must adapt, accept and adopt new technology, processes and requirements from occupiers and, of increasing importance, workers’ needs. It is essential to focus on three key areas:
- Firstly, technology adoption is crucial. While the UK boasts Europe’s largest technology ecosystem and ranks second globally to the US, it must continue to lead in fintech and AI/cloud computing development and adoption
- Secondly, talent and skills are vital. The Government predicts that 20% of the UK workforce will be underskilled for their jobs by 2030. Therefore, companies in the City and across the capital must have a clear skills strategy to ensure their employees can capitalise on the rapid evolution in technology and digitalised business services. Competitor markets such as Singapore, India, and the US pose significant threats to the City’s capital market offer
- Lastly, AI and data infrastructure are imperative. The UK is at the forefront of AI adoption, with the third-highest number of data centres globally. However, investment in this sector will be influenced by access to uninterrupted power and watercooling, high-speed networks, and robust physical and cyber security protocols
We must not be complacent. London’s position at the forefront of commercial and capital markets is under threat from both established markets, such as the US, and emerging markets namely China, Japan, India and Dubai, which all have the desire and the political will to displace us.
London and the UK must continue to attract new entrants and be development-friendly, with few barriers to entry such as high employment costs and taxation rates and a government that supports growth and innovation.
While the UK is currently considered a safe haven, we face continual political and economic risks which affect the attractiveness of the City when compared to the competition across the world.
While global market volatility could prove to be our friend, the City cannot rest and must continue to evolve, adopt and adapt.
*2028 minimum EPC rating for let commercial property tenancies will be C. 2030 minimum EPC rating for let commercial property tenancies will be B (under consultation).
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