The fallout from the EU Referendum result and this year’s General Election has meant that political uncertainty has become the new normal. However, while we know that this uncertainty and risk remains at the forefront of investors’ minds, the hunt for yield and reliable income streams supports property as an attractive asset class and the UK as an attractive place to invest.
So far this year we have seen robust international investor sentiment. The continued flow of global capital, in particular from Asian institutional and private investors has been buoyed by the depreciation of sterling. The UK commercial property asset class has been discounted by an average of 16% for cross border investors since the 2016 referendum result.
Foreign investment accounted for 51% of transactions in the UK last year, but it’s important to bear in mind that investor decisions are motivated by more than just currency fluctuations and that this is usually only an added incentive to an existing investment case. The UK is the world’s second largest commercial real estate market – behind only the United States – offering unrivalled depth and liquidity within EMEA. It will remain an attractive place to invest and do business because of its investor friendly characteristics, including world leading transparency, language, rule of law, skills and time zone.
So where are investors seeing investment opportunities? As well as assets in central London and the logistics sector, we are increasingly seeing interest in Alternative asset classes. More than £4.5 billion was invested into the sector in Q2 2017 and we estimate that deal volumes will reach at least £15 billion by the end of this year, compared to £12.3 bn in 2016. In many of the sectors under this umbrella such as student housing, self storage and retirement living, the key drivers of growth are based on demographic, technological or structural change which means they are less exposed to economic and political uncertainties.
Sound UK economic and property fundamentals support strong international investor sentiment for the rest of the year and we anticipate capital from Asia and the Middle East to lead the charge. You can read more in our latest UK Capital Markets Insights update.