Insights / 18 February 2020
UK offers good opportunities in 2020 by Simon Todd
Having attended the Association of Real Estate Funds’ (AREF) breakfast seminar ‘20:20 Vision – the year ahead’ in London, the view is that as we enter a new decade, the future for UK-focused real estate investment looks cautiously optimistic…
Overall, the event was dominated, perhaps unsurprisingly, by two macro themes – Brexit and Environmental, Social and Governance (ESG)/social impact. A poll of attendees highlighted that these two issues are anticipated to have by far and away the biggest impact on the UK real estate sector this year.
As far as Brexit is concerned, whilst the UK’s exit from the EU remains a fundamental issue and will likely remain a vital issue for some years, the sense amongst speakers was that having a majority government now in place promising a swift Brexit process was helping to unblock pent up capital, ready to be deployed into the UK real estate sector.
Speakers seemed to agree that there is now, against a backdrop of global uncertainty, and political and societal change, more optimism for the year ahead. We know from our own experience that international investors are looking at the UK in a number of areas, it has remained an attractive prospect. The challenge has been uncertainty and timing. Now that the UK seems to be on a forward trajectory, the anticipation is that we will start to see greater levels of capital flows into London and the wider UK through 2020.
In particular, speakers pointed to the sustained demand for prime office space and development in London and major cities outside London as a hot area, whilst the retail sector has seen a substantial period of disruption with downward pressure on values it was considered assets that retain the key fundamentals could soon offer good value opportunities, with US investors suggested to be a particularly good bet for the sector. The private rented sector (PRS) remains hugely attractive too and, whilst to date investment has been stifled to a certain extent by a lack of suitable opportunities, mounting calls to address the housing crisis in the UK could spur on activity in this area.
Meanwhile, speakers also debated the extent to which ESG was becoming embedded in the sector.
There was a genuine feeling that the massive surge in noise we’ve seen over the past year or so around ESG is not just a passing phase. There was considerable discussion at the seminar about whether a focus on ESG necessarily impacts returns – and overwhelmingly speakers and attendees felt that conversely, a focus on ESG is actually critical to value creation.
It’s something we’re seeing increasingly at Crestbridge too – investors consider ESG as an integral part of the process, they are looking for evidence of environmental and social performance and building that into their overall strategy. These concepts will continue to evolve and the industry will need to embed them at its core over the coming year.
Overall, there’s still a good deal of uncertainty across the investment landscape, but with real estate providing a safe option for investors in volatile times, with specialist insight and support, there are good reasons for optimism for the year ahead.