Despite a turbulent 12 months, property remains a fundamentally safe asset class. While the United Kingdom’s decision to leave the European Union led to an initial dip in transactional activity across the real estate market, confidence remains high in the UK real estate market, especially in London. The sterling devaluation has made UK property attractive for international investors and the market continues to be dominated by Asian, American and pan-European investors.
London’s position as a global financial centre is under increased scrutiny, with major financial institutions warning that they will scale back their activity in the United Kingdom in favour of continental Europe. As a result, there has been a tightening in the central London office market. The rise of co-working offers opportunities to landlords with surplus space, demonstrating that the property industry needs to work harder to meet the demands of the next generation of workforce.
Specialist assets with secure income streams are becoming more popular. Sectors such as logistics and data centres have entered the mainstream and this trend is expected to continue.
The impact of the Internet has left some investors concerned about traditional retail investment. The new landscape also presents a challenge for landlords to create compelling destinations to lure retailers, which could involve rearranging retail centres and creating areas for events or leisure activities.
Following the Brexit vote, pressing on with proposals to encourage housing development would also be an appropriate policy response, in terms of addressing both the shortage of housing and the need to stimulate economic growth and employment.
The recently published Housing White Paper indicates that the government is not going to bulldoze through changes to suit its own political agenda, but is willing to take the bold step of formulating a carefully crafted, long-term strategy, informed by those best placed to help shape it.
The spotlight is currently on the build-to-rent market, marking a clear shift away from the fixation with owner occupation. There is open support from the government for the sector; however, much of the decision making has been left to the discretion of the planning authorities – many of which lack familiarity with the sector, which may deter investment. Nonetheless, the macro-requirement for a significantly increased rental market (given the affordability constraints on ownership) is focusing the attention of many key London real estate investors in this area.
As investors seek to diversify their portfolios, alternative residential assets – including student accommodation and senior living – are becoming increasingly popular investments. Less cyclical than other property classes, they provide investors with stable incomes, low voids and solid demand rates.