Private investors and developers are hunting residential and retail real estate opportunities in the face of rising geopolitical risks and soaring inflation.
Investec Real Estate’s first private client sentiment survey gathered the views of 110 UK high-net-worth individuals with assets of £15m-£250m. It said the UK’s stable economic and political environment continued to encourage activity.
Some 63% of respondents described London as very appealing for real estate investment, putting it ahead of Birmingham at 46% and Manchester at 45%. But these may well rise – 83% of respondents said the government’s levelling-up drive will make the regions more attractive over time.
Respondents singled out the residential sector as particularly attractive, with 70% anticipating that five-year UK residential capital values would be either higher or significantly higher than the 13.1% predicted in a winter report from Savills. Retail had its fans, with 42% of investors seeing opportunity in the sector during the next five years, while 84% of investors and 80% of developers expect to be involved in the office sector over the same period. Industrial and student housing look set to see the biggest jump in activity.
The research suggested private clients are taking on more risk as inflation rises, with 29% of respondents saying an opportunistic real estate strategy will now provide the best relative risk-adjusted return, up from just 9% in a similar survey three years ago. Core-plus strategies remain the most appealing.
William Scoular, head of private client lending at Investec Real Estate, said several market challenges have become starker since the survey, which was conducted in February but published this week. “Even if we did the survey now, I think our private client base would be positive about the market,” he said. “Our pipeline has still been strong coming through, but probably more on assets the client has already acquired.”
Scoular added: “We’ve been through such turmoil in the marketplace and yet confidence remains. Even with higher interest rates, they are at historically low levels, which do make business possible.”
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