The nature of the current investment market is unprecedented. Not only is the UK facing a high level of political turbulence, but we have now entered the 11th year of a bull cycle for the first time. The question on many investors’ lips is: Are we facing an imminent financial crash? Or will the real estate sector’s fortunes continue to be favourable?
Leading audit, tax and consulting firm RSM is looking to delve into the minds of the UK’s real estate professionals to shed some light on these questions and more. Each year, RSM presents its Real Estate 360 survey, which speaks to more than 250 UK senior real estate professionals. It garners their thoughts for the year, the trends they expect to emerge and what can be done to succeed in today’s uncertain environment.
“The survey will dig deep into all aspects of the real estate industry, not just investment,” RSM Head of Real Estate and Construction Howard Freedman said. “The industry is evolving; we want to know what the industry thinks about how space is used and where growth will lie in the coming months. Today’s environment is unlike any we have operated in before.”
The Landscape Today
Looking back, last year’s Real Estate 360 results were in many ways an accurate picture of the state of the market in which we now find ourselves. Brexit’s impact on the industry was not expected to be dramatic and indeed leasing hasn’t ground to a halt. However, almost 75% of respondents believed that political and economic volatility would lead to more selective decision making. It has.
“The outlook for next year depends on Brexit and the general election,” Freedman said. “At the moment, there are huge opportunities for international investors because our currency is weak, but these need to be weighed up against the significant political uncertainty. Will overseas investors invest against that backdrop?”
Respondents to last year’s Real Estate 360 survey indicated that 30% to 60% of investment in UK real estate would come from overseas investment. The level that people might predict in this year’s survey depends as much upon other countries’ political environments as the UK’s, Freedman said.
If an investor is located in a stable political environment, they might view the UK as too risky, but if the government is equally unstable where they are, they might not. Freedman referred to an investor client based in South Africa who didn’t see the UK’s political instability as a challenge. However, there is no doubt that the UK’s current political uncertainty is a far cry from its usual position.
The Hunt For Value
As was the case last year, Freedman believed that this year’s Real Estate 360 survey will highlight investors’ willingness to stray away from core investment locations.
“UK investors are looking for value and will be looking outside London and the South East more now than ever before,” Freedman said. “They are looking for assets where they can manage the value up. However, many UK institutions are currently holding back.”
Investors’ inaction is making itself clear in transaction figures. Savills recently reported a 26% drop in commercial transactions in the year to date compared to the previous year, which the firm attributed in part to political uncertainty.
However, Freedman believed that RSM’s survey will highlight areas of growth within real estate similar to those highlighted last year: flexible offices and the private rented sector are two standout areas. Social attitudes to shared space and renting are changing and this will continue to impact the UK’s real estate market in the coming year.
Overall, the 2018/2019 Real Estate 360 survey found that despite the current rocky political landscape, the UK real estate sector is holding its ground. This year, Freedman believed the survey will uncover a greater level of uncertainty. However, the opportunities will still exist for the savvy investor to use political snowballs to their advantage.
This feature was produced by Bisnow Branded Content in collaboration with RSM. Bisnow news staff was not involved in the production of this content.
