The UK investment property market remains an attractive proposition for international investors. The percentage of overseas owners of UK investment property has been growing for some time and by the end of 2016 reached nearly 30% of total UK commercial investment
property, close to double what it had been in 2006. Far from sounding the death knell for the UK investment property market (as was predicted in some sections of the media), after some initial uncertainty following the vote in June 2016 the Brexit vote has actually provided an
additional impetus to the investment property market, particularly for international investors who benefit from currency advantages as a result of the weakened pound.
The City of London investment market has enjoyed a long period of attractiveness to inward investors and a weight of money remains on hand ready to be deployed. The weakened pound has given Asian and Far Eastern investors a particular advantage, but we have also seen German funds return to the market with a number of City of London office acquisitions in 2016-2017. In addition to providing an opportunity to deploy large amounts of capital with attractive currency returns, the City market remains fundamentally a well-regulated, stable home for foreign capital underpinned by continued occupier demand (particularly in high tech sectors) and a high-quality development pipeline. Prime yields offered by London offices, for example, remain ahead of the major Asian markets and most of the key European ones and therefore continue to be a source of demand from the overseas investor.
Of the other core investment property sectors, the industrial and logistics sector has enjoyed a previously-unprecedented boom period with investors of all types chasing these assets (particularly those "last mile" assets within or close to urban areas). The industrial and logistics sector is now close to 20% of the commercial investment property universe in the UK. Stellar returns on industrial and logistics investment (some at over 20% total returns) have underpinned growth across the UK investment funds market. Yields on sheds have compressed to historically low levels (some are now at the levels historically only associated with prime City office investments).
Residential property (particularly the build to rent sector) is a growing asset class which is slowly appealing to the traditional institutional investor base in the UK while retaining its appeal for smaller private developers and investors. However, despite the fact that the UK residential property market is many times the value of the UK commercial property sector and the private rented sector alone is worth more than £1tn overseas, UK property investment in this sector remains very low in total terms. The opportunity must therefore remain for this sector to be opened up to UK and overseas investors.
When we speak of the UK investment property market for overseas investors we are still referring primarily to London. However, overseas money has increasingly found a home elsewhere in the UK where the “Big 6” centres of Birmingham, Bristol, Edinburgh, Glasgow, Leeds and Manchester are proving attractive. Boosted by significant investment in infrastructure and government devolution to unleash their full economic potential, growth in the Regions is expected.
Stevens & Bolton look forward to discussing the above and more with you at our Think Tank: 'Go West to Invest: Let’s talk UK Real Estate, together' at the Expert-Talk: European Real Estate Markets on June 19th, 2018 at the Tower 185 in Frankfurt am Main.
Reserve your seat now!