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The author of this article delves into what wealthy investors around the world are doing in the UK real estate market, and why.
This news service recently
interviewed UK-based Oryx Real
Estate Partners about its views on the UK’s property market,
following a transaction it carried out – with the backing of a
Saudi family office – in the logistics sector. That interview
shed light on the thinking of international investors about the
UK, and on the valuation considerations that have emerged since
the pandemic’s end, and the onset of higher interest
rates.
In this article, Johan Eriksson, managing partner at Oryx,
gives some brief comments on the state of the market, the
investment considerations that arise, and what the future may
hold.
The editors are pleased to share these views; the usual
editorial disclaimers apply. Please email [email protected]
if you wish to comment.
A recent UBS report found
that 30 per cent of its wealthy clientele intend to increase
capital allocation to real estate over the next 12 months. This
puts the asset class ahead of bonds, commodities, hedge fund
strategies, infrastructure, and emerging markets equities. Just
10 per cent stated plans to decrease real estate exposure, with
private equity funds (25 per cent) and cash (20 per cent) leading
this list.
Having deployed nearly £200 million ($252.4 million) of capital,
including from family offices, into UK real estate across the
risk spectrum, we also expect this investor group to be more
acquisitive in 2024 alongside institutions.
The property investment market is returning to “normal” after
more than a decade of returns fuelled by cheap financing and
compressing property yields. While 2023 was relatively subdued,
due to asset value corrections and higher debt costs, the UK
should see a quicker recovery than its European peers due to
sharper rate hikes causing prime property prices to adjust and
bottom out.
UK inflation has slowed considerably to 3.9 per cent, edging
closer to the Bank of England’s 2 per cent target, raising hopes
that rates have peaked. Many market participants are now pricing
in cuts as early as in 2024, and five-year rates have stabilised.
The current window, with higher property yields and stabilised
debt costs, offers a compelling opportunity to realise
historically attractive returns, given UK asset pricing compared
with 18 months ago.
This is reinforced by the robust occupier market, especially for
high-quality fit-for-purpose and future-proof office assets.
Cushman & Wakefield reported that office take-up across the Big
Five (Birmingham, Bristol, Edinburgh, Leeds, and Manchester) and
Central London markets, totalled 3.4 million sq. ft. in Q3 2023,
up 32 per cent quarter-on-quarter. This was underpinned by the
growing demand for prime “Grade A” space fit for modern occupier
requirements, which accounted for 70 per cent of all space taken,
well above the 57 per cent five-year average.
