Cool it (Property opinion piece May 2015)

By Graham Porter, Head of UK Property Research, Aberdeen

When things overheat, there are two choices: cool them down or let them explode. London’s housing market could be reaching such a point and its office market is not immune, either. As London house prices — and rents — rise beyond any given measure of affordability, wages must do the same in order to keep up.

With a major increase in new supply unlikely to materialise, is a cooling in demand part of the answer? HSBC is moving its entire UK retail and commercial banking head office to Birmingham; surely shareholders of other companies will question the necessity of being in London with its spiralling office rents and labour costs? The UK is arguably the most centralised economy in the developed world. It could be that businesses, rather than government, drive the elusive process of rebalancing this London focus. By doing so, businesses may curtail the London boom.

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