Institutional investor appetite stimulated by softer Brexit

GRI Club UK discuss changing real estate investment strategies in the UK amid continuing Brexit uncertainties.

May 2, 2019Real Estate
GRI Club UK members, meeting in London on 25 April 2019 - shortly after the original Brexit deadline of 29 March 2019 - agreed that there has been a mentality shift regarding Brexit, now that any deal for the UK’s exit from the EU appears to be getting softer and softer. GRI has already been tracking real estate market attitudes to Brexit through its GRI Barometer UK; the industry survey was run in late-February, where it found that 52% of UK and Irish real estate leaders would have preferred to remain in the EU, that 38.7% were in favour of a negotiated Brexit deal, and that only 9% viewed a ‘no deal’ Brexit as acceptable.

One principal at the club meeting observed that in the last month or so, they have had little trouble in selling real estate assets, to a mixture of both foreign and domestic buyers. It appears that investor appetite is stronger for value-add and opportunistic deals, although there are pricing discords between sellers’ expectations and buyers’ willingness to pay.

Beyond Brexit

Alternative residential assets (student, senior living, healthcare) are expected to continue to perform favourably in the run-up to the UK’s departure from the EU, and beyond. However, the market in London offices is expected to remain flat, due to high prices and the migration of many tenants to the regions and EU gateway cities.

The polarisation of retail was discussed at length; one retail-focused principal explained that while luxury retail has ridden out the turbulence of Brexit and e-commerce, traditional high-street retail assets have been more seriously affected, as evidenced by several available leases, with Oxford Street specifically cited. The consensus was that high-street retail assets need to be restructured and repositioned.

London versus UK regions

The position of London versus the regions - in relation to finding yields - was considered. Participants observed that in the regions, there had been a major increase in the scale of regional build-to-rent (BTR) residential projects and office developments, helped by the fact that there is less competition and more attractive pricing. The regions are also seen to have fewer political barriers when it comes to obtaining planning permission.

However, some overseas investors voiced their preference for London-based investment and their reluctance to invest in the regions, given their lack of local knowledge. Some domestic investors are also conscious of the need for urban regeneration in the hearts of many regional cities, which impacts their investment decisions.

The UK and Ireland’s real estate markets will be discussed further at British & Irish GRI 2019 on 15-16 May in London.