Today, Bloomberg reported that commercial property in London is booming. Citing data from Real Capital Analytics (RSA), sales of existing commercial property in the U.K. capital totaled $13.9 billion in the first nine months of this year.
Dan Fasula, Managing Director of RCA was ecstatic:
"There’s a massive surplus of investment capital looking for a home, and the one thing in common is a desire for yield. London office property at a 5 or 6 percent yield looks fantastic against the alternatives. Negative real interest rates mean you aren’t going to buy government bonds, corporate bonds have already had an incredible rally, gold doesn’t give you a yield and the stock market is volatile."
To be fair to Dan, what he says makes sense. If the Bank of England engineers a situation where interest rates on government bonds and bank deposits are negative, investors will seek returns elsewhere. If, as Dan suggests, commercial property is yielding five or six percent, then the commercial property market will start a bubble.
The sad fact is that Britain, and the investors it attracts from abroad, are hopelessly addicted to property speculation. I used to think the recent crash in prices might provide an antidote, but I was wrong. The crash is merely a precursor to another bubble.
While I can't share Dan's excitement I suspect he might be telling us something quite important.