Mansion Global

Global Real Estate Boom Is Coming to an End, U.K.’s Grosvenor Warns

Stock-market volatility, low oil prices and political uncertainty have dampened demand

Save

A terrace of residential properties in the affluent Belgravia area of London. High-end housing markets in cities like London and New York have softened in the past year.

GETTY IMAGES
A terrace of residential properties in the affluent Belgravia area of London. High-end housing markets in cities like London and New York have softened in the past year.
GETTY IMAGES

A major U.K. landlord warned Tuesday that the boom in global real estate is coming to an end. London-based Grosvenor Group, which manages investments on behalf of the Duke of Westminster, said in its annual report that years of rising property values could be set to reverse. While it isn’t possible to predict when the market will turn, “it is only a matter of time,” said Nicholas Scarles, group finance director, in the 2015 report.

Real-estate investment surged after the 2008 financial crisis, pushing values of commercial and residential property to record highs in cities around the world. Amid low interest rates, returns in property looked attractive compared with other asset classes. Stock-market volatility, low oil prices and political uncertainty have dampened demand. High-end housing markets in cities like London and New York have softened in the past year. Commercial property transaction volumes totaled $1.2 trillion in 2015, down 2% from 2014, according to data-provider Real Capital Analytics. Grosvenor is continuing to “expect and plan for a slowdown, particularly in high-end commercial and residential property,” Mr. Scarles said. Other historic landlords in Britain have also been preparing for a downturn. For Grosvenor, preparation includes selling assets and pursuing development opportunities expected to mature during the next market upturn, Mr. Scarles said. In addition to high property values, “there is a risk that sustained low oil prices could lead to sovereign-wealth funds reducing investment in high-end commercial and residential property in London and elsewhere,” he said. “All of this points to a correction in the near future,” he said. Grosvenor manages a £6.7 billion ($8.42 billion) property portfolio spanning Hong Kong to San Francisco. The jewel in Grosvenor’s crown is a 300-acre plot of central London that has been in the family since 1677. Once a marshy pasture, it now encompasses the Mayfair and Belgravia neighborhoods, home to hedge funds and embassies. Prices of luxury housing in these areas have fallen in the past year. “In the U.K., the top end of the residential market in London has passed its peak, due in part to the recent changes to stamp duty, along with the strength of sterling during 2015,” said Mark Preston, Grosvenor’s chief executive, in the report. In 2015, the total return for Grosvenor was 9%, down from 13.1% in 2014. Pretax profit was £526.6 million, down from £681.8 million in 2014. “While we have seen performance above the cycle average in each of the years since the financial crisis, we anticipate the next few years will bring a more challenging environment,” Mr. Scarles said. Write to Art Patnaude at art.patnaude@wsj.com This article originally appeared on The Wall Street Journal. MORE From Mansion Global: