Post-Brexit Opportunities in UK Real Estate

The UK’s reputation as a place of business has suffered in recent years, thanks to Brexit. But despite the gloomy headlines – and the gloomy weather – opportunity is returning to the market and the outlook for real estate after Brexit is positive.

The fundamentals that have long drawn investors to the UK remain. Other factors are creating opportunity too. Four are particularly significant.

1) Population

The UK population is set to grow by three million over the next decade, putting further pressure on a residential market that, in many parts of the country, is struggling to keep up with demand.

It means there is a considerable gap to close if the government’s ambition to deliver 300,000 net additional homes a year on average is to be realised.

At a time of rapid urbanisation, the number of people renting is growing due to lack of affordability in the medium term and with a market that is allowing people to choose what’s best for them, there are more opportunities in the UK residential market than there have been for years. Now it is the time to buy land and build residential for rent and for sale.

2) UK Comparative Market

The UK remains one of the largest commercial real estate markets in in the world. Despite unprecedented political uncertainty transaction levels have stayed positive.

Nevertheless real estate returns in the UK have underperformed. CBRE estimates that if the UK had maintained its 13% share of the global investment from Q2 2016 to Q2 2019, an additional €90 billion worth of real estate would have been transacted in the last three years.

This underperformance creates opportunity. The UK economy should grow faster than those of France and Germany in 2020. Uncertainties will pass, and investors may find good bargains if they shop early – especially with an attractive currency discount. Focus on income-producing assets in core locations.

3) Tech-driven change

Tenants want well connected buildings and are willing to pay more for the privilege.

The rising cost of real estate means space optimisation is critical and requires more intelligent buildings. At the same time the industry is having to pay more attention to quality of service, one of the factors that has driven growth among flexible workspace providers.

Technology is also fuelling the growth of modular construction in the residential market and nowhere is its effect more apparent than in retail.

In short, tech is creating direct and indirect opportunities for investors. The savviest are focusing on the regeneration of older assets into new uses on creating new assets to meet tomorrow’s customer demand, delivering Grade A business space and building a service culture in the assets and organisations.

4) Climate Change

The building and construction sectors are responsible for 36% of global final energy consumption and nearly 40% of total direct and indirect CO2 emissions.

Behaviour and regulation is changing.

23 property owners with more than £300bn of assets under management covering in excess of 11,000 buildings have signed a ground breaking commitment to tackle the growing risk of climate change.

Net zero carbon potential will be a consideration for more and more investors. Other factors should be considered too. Of course Brexit will change things too.

And the government’s focus is now on a trade deal with the EU. Relationships with the UK’s largest trading partner will change dramatically.

Supply chains set up globally for a UK economy integrated with Europe will need to be rebuilt.

In 2020, with a degree of political certainty returning to the UK, overseas investors are expected to release tens of billions of pounds of investment into UK real estate.

The smartest investors will be looking to join them.

This is an unprecedented period for the UK, but the outlook is relatively cheap good and it has huge potential for change in coming years.