The UK has ranked highest for future residential real estate investment, in a survey of 500 investors, developers and asset managers with more than $3bn AUM from across Europe, China and the US, suggesting the UK real estate market will remain firmly open for business post-Brexit.
The findings from the European Real Estate global survey by international law firm DLA Piper found that, overall, the top five countries for investment in residential assets over the next 12 months are all in Europe, with the UK leading the way (33%), followed by France (28%), Germany (25%), Spain (24%) and Italy (18%).
Top countries in which global companies, asset managers and developers wish to invest and manage residential assets over the next 12 months
|Rank||Investors headquartered in the EU5*||Investors headquartered in the US||Investors headquartered in China||Global total|
|1st||Spain (33%)||UK (39%)||UK (52%)||UK (33%)|
|2nd||France (31%)||Germany (27%)||Germany (38%)||France (28%)|
|3rd||UK (28%)||Hungary (17%)||Finland (30%)||Germany (25%)|
|4th||Germany (22%)||France (15%)||France (28%)||Spain (24%)|
|5th||Italy (20%)||Finland (12%)||Denmark (26%)||Italy (18%)|
Nearly three-quarters (74%) of respondents plan to invest in European residential assets over the next year, signalling that the market remains attractive for future investment despite the challenges posed by Covid – which has hit the UK, Spain, France and Italy especially hard.
Of these, almost one third (29%) expect to invest more in 2021 compared to 2020, on average increasing assets by nearly 30%. When investing, the majority (88%) are set to enter new countries in partnership with a local developer or manager.
For most investors, traditional residential assets are the preferred safe haven choice, with nearly three-quarters (71%) managing build or own-to-lease properties, while just over half (51%) maintain student living premises and two-fifths (44%) senior and retirement living spaces.
In spite of the ongoing Covid-19 pandemic and the uncertainty over the shape of the global economic and social recovery, more than half of respondents (55%) said they feel positive about the outlook of the European real estate market – with only 11% feeling negative. Those headquartered in China and the EU5 (UK, Germany, France, Spain and Italy) are the most positive, at 66% and 57% respectively.
Current outlook on the European real estate market
|Sentiment||Investors headquartered in the EU5*||Investors headquartered in the US||Investors headquartered in China||Global Total|
Respondents cited the top reasons for being optimistic as high demand due to a shortfall in supply (43%), real estate income yields that are higher than those for fixed income (43%), and asset prices which remain attractive (40%).
Among those respondents that remain negative about the future, concerns over the pandemic and more lockdowns (64%), the recession impacting demand (51%) and the fact that the real estate market lacks daily liquidity in comparison to equity and bond markets (46%) were cited as the three main reasons for a less rosy outlook.
Olaf Schmidt, real estate partner and managing director of practice groups at DLA Piper, said of the findings: “Investment in European residential real estate assets has been traditionally considered a market for local investors and it was largely dominated by local asset managers. High barriers to entry due to the existence of different national market practices and legal systems made it difficult to enter this market. However, over the past few years this has changed.”
He added: “Residential developers went international, asset managers have created teams specialised in the residential market segment, institutional capital opened up, and asset managers can now invest in the various forms of residential assets across Europe.”
He says the survey’s findings show that despite the ongoing challenges of the Covid-19 pandemic, the European real estate market remains attractive because of ‘its strong fundamentals, low interest rates, and high potential yield returns compared to equity markets’.
“The UK remains an attractive market for investment, and will also be the same post-Brexit, which should provide confirmation and reassurance that the UK is a vital hub for activity and growth.”
How will Brexit impact the housing market?
Ryan Prince, founder and chief executive of Build to Rent brand UNCLE, which has five buildings across the UK, believes it’s nearly impossible at the moment to separate the impact of Brexit from Covid, with the latter ‘set to have a much greater impact on the rental market over the next year’.
“Over the longer-term (five to 10 years), it’s more the issues relating to supply chains and currency rates from Brexit which will impact the supply of rental properties. It’s also likely to affect how fast and efficiently construction companies can obtain supplies, as well as the price, potentially slowing the rate of new developments across the country,” he said.
“The fluctuating value of sterling, particularly against the euro, will also impact the cost of building – possibly leading to more renters in the short-term if housing developments are postponed. That being said, I believe the government’s attitude towards domestic planning policy post-Brexit will inevitably have a much more significant impact on housing supply.”
He thinks the notion that landlords will have the pricing ‘power’ to decide to increase rents as a result of Brexit is ‘ludicrous’.
“The rental market is based entirely on supply and demand – and with the post-Brexit immigration system set to be more restrictive, demand will most likely be lower, in the short term at least,” he argued.
“If companies choose to move their headquarters from London to other major European cities next year, the number of high-skilled professionals in the capital will also subsequently decrease in the short term, meaning some landlords may seek to increase rents in an attempt to earn back what they feel they’ve lost.”
However, he thinks it is more likely the uncertainty around Brexit will force a number of landlords to freeze rents in order to maintain a steady income – ‘meaning if anything, tenants should be able to save money’.
He argues that if the UK chooses to implement a new, more restrictive immigration policy post-Brexit, similar to Canada for example – which will attract high-skilled and high-earning workers from the knowledge economy – then demand should increase, with rents subsequently increasing higher than inflation.
“The dip in the economy caused by Brexit, however, will impact the housing market,” he continued.
“If people lose their source of income due to economic fallout from the referendum, then this will obviously impact landlords if tenants leave their properties.”
“Another factor to consider is Brits abroad. The uncertainty over Brexit could lead to many British expats returning home and renting rather than buying, particularly retirees abroad in countries like France or Spain.”