The UK could benefit from US President Donald Trump’s trade war in the mid-to-long-term, says the global head of real estate and co-chief executive of Swiss private bank Pictet, Zsolt Kohalmi.
Speaking at a roundtable event in Pictet’s London office, Kohalmi said that tariffs would inevitably be painful for investors in the short term: “Policy is literally evolving on a 12-hour basis. Making an investment decision – for a real estate investor who’s on a minimum five, but on average 7-8 year cycle – is very difficult.
“Real estate activity has been very slow for many years. So there is a congestion zone of assets that investors wanted to sell and I think that expectation has slowed down.”
Beyond that, however, Kohalmi said it could present an opportunity to draw in investment as investors look for a stable place to preserve their wealth. “This is genuinely an opportunity. Europe has not accepted its role as being almost secondary to the US and I think this may well serve as a wake-up call in general for Europe – including the United Kingdom,” he said. “We have sent too much capital towards the US and I think if more of that capital stays here and becomes productive here… it may well lead to good things in the midterm.”
Steadying the boat
Kohalmi based this view on an expectation that investors would look to move away from the dollar, previously a relative safe haven, and generally diversify to protect against the uncertainty Trump’s policies are causing.
He said investors would “diversify away from having all [their] eggs in one basket in the US because, as we know, the one certainty they’re creating is uncertainty. And if you have this economic uncertainty and you don’t know where economic activity will be stronger, then you want to be more diversified. That pushes people to invest more in Europe and into European real estate.”
While the sector has seen a series of knocks which have dampened activity, Kohalmi said in this case it is relatively well insulated from macroeconomic volatility tariffs are causing.
“Real estate is, almost singularly, the one out of the major asset classes that has already seen cyclical lows,” he said. “The devaluations that came about because of interest rates have meant real estate has been one of the only asset classes near the bottom.”
The silver lining, he said, is that interest rates are largely expected to have peaked and will come down significantly.
“I do see that as a six-to-12-month potential bright side, especially in relative terms… the falls would be less painful for real estate given the adjustments we’ve already had,” added Kohalmi.
In the short-term, however, he said investors still face congestion which limits liquidity as they look to exit certain assets – particularly those exposed to offices and retail.
“Ten years ago, most of the long-term holder core LPs that the value-add investor would have liked to sell to were holding 50%-60% offices and retail combined,” he said. “Now, most of those investors are looking to reduce that to probably in the 30%s.
“The office building is going to remain under pressure for liquidity because when I look around the world, I see people wanting to divest. I see very few people wanting to buy.”
Early in the upturn
In the UK specifically, real estate professionals are wary. “The cliché that we are in uncharted waters has never been more applicable,” said Mark Rymell, principal at Guildford-based development manager Citicentric, one of 500-plus chartered surveyors grilled as part of the RICS’ first-quarter UK Commercial Property Monitor.
“As a consequence of Trump’s tariffs and [their] impact upon the global economy, it’s currently impossible to have anything other than the shortest of horizons,” Rymell added in comments published in the organisation’s report.
Political leaders this side of the Atlantic also came in for their share of blame for market woes. Russell Francis, head of valuation at Colliers, pointed to “uncertain times”, noting that “the impact of political and economic upheaval in the USA and an anti-growth chancellor in the UK [are] countering the general benefits of lower global interest rates.”
RICS said the survey showed a “generally cautious” market sentiment and that there were “early indications” that some sectors are improving. There was a “marginal” rise in the share of respondents that feel the market has shifted into the nascent stages of an upturn, the organisation said – 35% versus 33% in the previous quarterly survey.
“Despite the turbulence engulfing the geo-political environment following president Trump’s tariff announcement at the start of April, feedback was steady with the headline investment enquiries metric returning to positive territory, albeit modestly, for the first time since the second quarter of 2022,” said chief economist Simon Rubinsohn.
“Longer-term indicators, while generally constructive, continue to reflect the likely headwinds facing the real estate market over the next 12 months. Aside from the challenges linked to the global economy, concerns around domestic issues including the impact of the uplift in NI contributions are seen as likely weighing on occupier demand.”
Occupier demand across all real estate types was broadly flat, with offices and industrial posting modest gains, while the retail sector continued to struggle. As for investor sentiment, headline enquiries posted a slight improvement, with the net balance moving to +4% from -4% during the final three months of 2024. The industrial sector continued to outperform, with an 18% rise in demand.
Prime industrial and office spaces are expected to achieve rental growth of 2.2% and 2.1% respectively over the next 12 months, while secondary retail and office rents are anticipated to fall by 3.2% and 2.6%. Alternative sectors such as data centres (4%), multifamily residential (2.7%), life sciences (2.4%) and aged care facilities (2.2%) look set to lead rental growth according to net balance sentiment from respondents.
Prime industrial and office values are expected to grow by nearly 2% over the coming year, while secondary office and retail values are likely to decline by around 2.5%.
Falling out of bed
“Investors are there but with such significant distress in many occupier markets, caution is the watch-word,” said survey respondent Brendan Bruder of Abbeyross Chartered Surveyors.
“The impossibly broken rating regime, local authority crises and funding reticence all make potential early stages improvement a little more distant.”
Government policy was highlighted by numerous respondents as a drag on sentiment and activity.
“The new Labour government’s proposals to grow the economy have failed at the first point of calling, as the increase in employer NI contributions and lowering thresholds has impacted business confidence, evidenced by the drop in enquiries and deals falling out of bed,” said Andy Taylorson at Eckersley Chartered Surveyors. “The rhetoric around improving the planning system and building 1.5m new homes is not deliverable and delaying capital programmes around new highway infrastructure hinders growth. Time for a u-turn!”
John Macdonald of William Nash Properties echoed much of that sentiment, yet he said that some sectors are benefiting from policy changes.
“Various sectors of the market are being materially affected by government policies, some to their benefit, eg. residential development, but most others to their disadvantage by business rates, the impending increase in national insurance and changes to employment law,” he said.
Iain Steele, director at Farnham-based consultancy Park Steele, bemoaned dragged-out deal times: “The market has become quite challenging with purchasers and tenants slowing up their decision making and unable to rush into making a final commitment,” he added. “Even the previously buzzing industrial market can no longer be relied upon for a faster moving transaction. The legal process when that point is reached continues to be slow.”
Image © Adobe Stock
Send feedback to Tim Burke
Send feedback to Dominic Plaskota
Follow Estates Gazette
