There is a legend that if the resident ravens of the Tower of London ever vacate the premises, the monarchy would fall and the Kingdom crumble. Much like the City of London itself, the Tower closed in mid-March of this year and while it reopened for visitors in July, few have returned. The decline in summer visitor numbers at London attractions is in line with the turnstile counts at tube stations or footfall on prominent shopping streets. Perhaps unsurprisingly, it is also evident in the property market.
While the story of the ravens is just a myth for tourists, those looking at occupancy and footfall in the City of London over the months since the pandemic struck might find it scarily prescient. The lack of tourists at the historic fortress has made the birds restless, causing them to fly away. Has the impact of the pandemic on human behaviour fundamentally changed what London means to investors?
Investment volumes in London were down nearly a quarter in the first half of the year, worse than the European average of as well as for major challenger cities. Uncharacteristically, it lost top honours to Paris, with a collapse in London office deals caused by the strain of lockdown.
This shouldn’t come as a surprise: more than 60% of typical investment activity in London is by foreign capital. However, with an inability or reluctance to hop on planes, these investors either cast their attention to more familiar confines or put their proverbial pencils down altogether. Coupled with this, vendors with no obvious need to sell, have been able to bide their time.
Similarly, British office workers have been much slower to return to their desks than contemporaries in France, Germany, Italy or Spain. Since the summer holidays, only one-third of UK white-collar employees have returned to the office, lagging far behind the three-quarters of staff who have done so in Europe. It isn’t entirely clear why this is, but mixed messages from the government about returning to the office, a reliance on public transport in London, widespread high-speed internet in the home and difficulties in reconfiguring high-density open-plan offices into safe socially-distanced environments have certainly all been contributing factors.
Then of course there is Brexit, which, added to the current recessionary environment, is another challenge to the UK outlook. The range of possible ‘deal’ outcomes with Europe has eroded over time, and now only the least trade-friendly options remain. This means that Brexit could be a drag on UK economic activity and confound currency markets over the near term.
It’s understandable that investors may opt to be cautious with their allocations to the market and why the Tower’s ravens might be considering an alternative place to perch. However, the Royal Society for the Protection of Birds notes that ravens are known to be an intelligent species. If this is true, it’s likely they may choose to stay put. As should patient capital. Heightened uncertainty and a less competitive investment market will surely create opportunities to buy high-quality assets at attractive prices. This is undeniably a period of change and uncertainty, but London’s long-term appeal will remain.