Mayfair landlord warns global property markets in danger of overheating

One of London’s leading landlords has “dusted down” contingency plans it made during the property crash in 2007 because it believes global property markets are in danger of overheating.

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Grosvenor Group’s finance director tells property investors that the prospect of market correction is increasing

Grosvenor Group, which controls hundreds of acres in London’s West End plus a substantial international property portfolio, has reported record pre-tax profits of £681.8m for 2014, a 35% per cent increase on the previous 12 months.

Total property returns hit a six-year high of 13.1%, though the group cautions that it expects this to moderate to 8% “over the next few years”.

Graham Parry, research director of the property group that controls large parts of Mayfair, says record low yields in several of the biggest international property markets as a cause for “concerns about overheating”.

Grosvenor invests 40% of its balance sheet outside the UK and Parry warns: “The main risk is complacency.

“The current mixed fortunes in the global economy are reinforcing the benefits to investors of holding a diversified real estate portfolio.”

He adds: “With interest rates expected to remain low for at least another year, there is a risk that investors begin to underprice the prospect of an eventual normalisation in growth and interest rates over the medium term.

“This looks to be a particular concern in some of the larger prime global markets that have benefited the most since the crisis.”

Grosvenor is a private property investment company owned by the Duke of Westminster that manages £11.4bn of assets. Its finance director Nicholas Scarles says: “The prospect of a market correction is increasing.

“We have dusted down the plans we developed in 2007 and updated and improved them, with a focus on preparations within each of our businesses in 2015.”

This includes buying into less-trodden markets, he adds.

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The property industry has always, and continues to, interest me. Since joining Plaza Estates in 2008, I have learned a great deal about the market. My role involves advising clients on their purchases (together with our sales teams), managing refurbishments for them (together with our management and design team), preparing the property for rental (together with our rentals teams) or sale, and being responsible for the company’s digital marketing. Through all this, I have viewed the market from different angles. The market is always changing, and it is essential to adapt as it does so. This is something Plaza Estates has always done.