The rise of the ‘supernest’: Why the ultra-rich are ditching London’s hotels
As the slowdown in the London luxury property market continues and the sector is buffeted by new challenges stemming from the looming "Brexit", one niche of the U.K. capital's market has shown enviable resilience.
In an environment where central banks' quantitative easing has led to the suppression of bond yields and, by extension, diminished the return potential of many other asset classes, the opportunity cost of locking up funds in a medium-to-long term property play is substantially lower.
Indeed, for a certain rarefied segment of the market –namely, ultra-high net worth clientele – if a property can offer a spate of lifestyle-enhancing draws, it may represent an attractive investment option in the current climate.
Enter the idea of the "supernest", a term used to describe private residences which offer all of the lifestyle benefits, services and amenities which can be expected from the plushest suites in the capital's finest hotels.
Adrian Black, founder of real estate services provider YOUHome, says these residences can provide the convenience of being able to stay at your own home allied to a compelling investment rationale.
According to Black, "London supernests hold two key attractions for ultra-high net worth buyers. Firstly, they offer access to the capital's cosmopolitan lifestyle which provides virtually every convenience and attraction money can buy. Secondly – and critically - they make sense economically."
Black estimates a month's stay in a top suite at a leading London hotel could set you back around £150,000. The option of purchasing a £6 million ($7.3 million) "supernest" - can save on hotel costs. Plus, assuming you would be happy to forgo a (for example) 1 percent annual investment return earned on other assets - a supernest could be an attractive option, particularly if you believe you may stand to realize some capital appreciation in the medium to long run.
Speaking to CNBC on location at No. 1 Palace Street, currently being developed by luxury property company Northacre, Chief Executive Niccolò Barattieri di San Pietro said 56 out of 72 of these residences had already sold, despite hitting the luxury property market just as it turned abruptly lower in the second half of 2014.
According to Barattieri di San Pietro, "If you are delivering a higher product and better than anyone else, it is still selling."
Responding to data from London Central Portfolio which noted the number of super prime (£10 million-plus) sales in the U.K. fell by 84 percent in the three months to the end of August, the Northacre chief executive cautioned against tarring all developments with the same brush.
"You can't categorize luxury just in one bracket. You've got to dissect it slightly more. It's the market that's actually delivering much more than an apartment - a lifestyle - that's the one that's holding up well," he observed.
Sterling's precipitous decline since June's EU referendum has also driven interest from investors based overseas and armed with dollars and euros, who want minimal hassle associated with a purchase – and here it's the ultimate executed quality of a product that can make or break decisions.
According to Barattieri di San Pietro, "Demand for finished stock where people can actually just buy and move in has increased substantially."
He gave the example of a building nearby to No. 1 Palace Street comprising eight units which had failed to sell until being entirely snapped up in one fell swoop by a Hong Kong-based investor who, seeing the selling price drop by around 30 percent in real terms for him over the last two years, came in for what Northacre's CEO describes as a "currency play".
The purchaser is thought to be intending to rent out the units, thereby picking up on another theme visible in today's market, where rentals are growing increasingly common at all price points.
According to Charlie Ellingworth, founder and company director of buyers' real estate advisory service, Property Vision, the economics of buying may not make sense if your time horizon is too limited.
"If you are planning to be in London for less than four years, it now doesn't make much sense to buy given the exorbitant stamp duty charges coupled with other transaction costs. This has triggered a market anomaly in that more people are opting to rent all across the market, right up into the highest price bracket, where hitherto renting was much less common."