The UK's relative economic resilience-compared to its neighbors-has also been a selling point for investors. As issues with Spain, Italy and Greece persist, the pound remains separate from those countries' financial vicissitudes.

"Although the UK has a very deep deficit, there aren't necessarily concerns about a mismanagement of inflationary pressure, ' points out Real Capital Analytics global economist Sam Chandan. Right now, the euro-to-pound exchange is attracting foreign investors from Europe to London. Non European money is also finding its way to London from the Korean Sovereign Wealth Fund and Qatar.

"These buyers are basically big investors that are looking to reposition their global portfolios, ' says Gilmartin. "Investors want the large office box in London that they see as a good long term investment. The secondary High Street-type property, which is high yielding, but also high risk, doesn't really fit that mold."

With foreign money buoying the London market, upward pricing pressure has created a distinct lack of distressed property in the core sectors. Gilmartin explains that one of the key reasons distressed assets haven't really hit the market is that "the Bank of England has essentially bailed out the property sector by slashing rates to historic lows. This has meant that as long as you serviced your interest payments, debt service, in some cases, fell quite dramatically for commercial property landlords."

But the outerlying areas are still in trouble, Gilmartin explains, because of a pricing disconnect between Central London and the rest of the England. Still, this has not led to fire sales of troubled assets. Banks seem to have learned their lesson from the last downturn and are not foreclosing and divesting themselves of distressed real estate.

"It may be that banks were very reluctant in the UK to foreclose on property because it would obviously bring additional assets onto their balance sheets, which was ill-advised during the height of the credit crunch." Gilmartin observes.

"Banks are sitting on significant portfolios of underwater loans and, prudently, have not been flooding the market with those." explains Dodson. "The market still anticipates there will be some significant shake out, but the banks are biding their time because otherwise they will be destroying the goose that's laying the golden egg at the moment by flooding the market." making prices fall again.

However, Gilmartin sees another alternative as banks witness an 8% to 10% yield in some of these commercial property sales coming out of London. "As banks' balance sheets become healthier, it could become easier for them to start to foreclose on properties." he says. This possibility would create a situation where these financial institutions opportunistically begin foreclosing on troubled assets to auction them off in a competitive market.

The nationalization of the banks currently provides them a safety net to toy with such ideas, however, there may be a wrinkle in that strategy. "There are new capital-adequacy rules coming in." Dodson points out. "They will require banks to hold a larger percentage of capital on their balance sheets than they have in the past. That may persuade some institutions to dump some property in order to meet those requirements."

Meanwhile, Gilmartin sees the recovery continuing over the next six months, though after that, things become a bit murkier. As longer- term interest rates start rising once the government stimulus dries up and taxpayers are completely drained by tax increases, the recovery's momentum could be sapped of its potency, he explains. What's more, economic fundamentals, like job growth, are still lagging. And financing for local buyers remains scarce. This leaves local investors, who traditionally have been debt-backed buyers, ostensibly out in the cold. The dominant investors, Gilmartin explains, "may just be the equity players, like the life or pension funds that don't really have to rely on debt financing for their longer- term property investments."

And then there is always the trouble with their neighboring island, Ireland. Recently, the Irish government set up the National Asset Management Agency, effectively a government-run "bad bank." which purchases toxic Irish bank loans and exchanges them for government bonds. This, in turn, is recapitalizing the country's banks and jump starting the Irish economy.

"[The Irish] could end up with a very significant portfolio of assets and many of them are worth less than their original value." Dodson explains. "There could be well in excess of €50 billion (US$66.8 billion) worth of property ending up on the government books." There is concern that the Irish government might flood the UK market with these assets and damage the UK economy, he says.

The English government is trying to bargain with the Irish government to hedge against this scenario, but the results remain to be seen. The eventual disposition of distressed properties, however, is inevitable. And Gilmartin notes that, as interest rates rise, loans that have been extended may find trouble renegotiating and head to the market as distressed properties. Chandan notes that England, unlike the US, suffers from "primacy." where all other markets are necessarily subservient to London. Despite this issue, the benefits will slowly spread outward as investors seek higher risk and returns. For now, distressed investors will have to wait out pre-election jitters and the current London boom.

GlobeSt.com News Hub is your link to relevant real estate and business stories from other local, regional and national publications.