Opportunities in UK Real Estate

Published January 26, 2021

In this short video we outline the opportunities for UK real estate as a result of the radical change that’s happening from Brexit, Covid, climate change and the effects of new technologies transforming our physical environment. We will also explain why investors are buying real estate and where they should be looking in 2021.

Transcript

In this short video we outline the opportunities for UK real estate as a result of the radical change that’s happening from Brexit, Covid, climate change and the effects of new technologies transforming our physical environment. We will also explain why investors are buying real estate and where they should be looking in 2021.

Why UK

  • The UK is one of the largest, deepest and most liquid markets in the world with over £700bn of investible commercial real estate and £7trn of residential real estate.
  • It has one of the fastest growing and densest population of any major European country, strict planning laws on development and a shortage of construction in most sectors which underpins value. House prices are at an all-time high making people increasingly need to rent.
  • The UK is also the third largest online retail market for ecommerce sales, demand that exploded in 2020.[1]. The retail supply chain is shifting to selling direct to customers via small to mid-size warehouses in urban areas.
  • Customer demand is growing and changing.
  • Investor demand is also changing, with the collapse in income yield in 2020 accelerating a trend started in 2008. Property yields in the UK have remained relatively static in 2020 but the yield gap has grown.
  • As a result, real estate can provide income to replace bonds as well as providing protection against this inflation.

UK Now

  • The overall effect of Covid has been to accelerate changes that were happening anyway and consequently some assets may have become functionally obsolete almost overnight. At the same time, the reward for creating and owning new grade A stabilised assets with secure income will increase.

 

  • The effect of Brexit has been to depress UK pricing. Since the UK voted to leave the EU in 2016, GBP has been down nearly 20% versus USD, the FTSE is down c. 20% from its peak and London offices have flatlined whilst similar assets in Paris and Frankfurt are up 40% and 70% in USD terms.

 

What’s in the UK

Fiera Real Estate believe the top picks to deliver outsized returns will be development of new logistics, new residential (rent and sale) and, very selectively, some city centre development assets in regional cities.

  • Development is needed as many of tomorrows assets don’t exist today.
  • It also allows us to deliver building that the customer wants, which meet their evolving need, and most of all are resilient to the climate changes we expect and supportive to reversing the effects that are here today.
  • In a changing world owners of investment assets on longer leases, with secure cash flows, will best mitigate the risk of obsolesces through the duration of the lease and the fact that residual site value is a lower component in the discounted cash flow.
  • Looking at the opportunities through the disruption caused by Covid and Brexit, a booming residential and industrial market make for a very district and compelling opportunity in the years ahead and we at Fiera Real Estate have the people on the ground with the knowledge and track record to help.

[1] https://www.ons.gov.uk/businessindustryandtrade/retailindustry/timeseries/j4mc/drsi

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