INVESTING IN THE UK

from MIPIM 2022 Preview Magazine

INVESTING IN CEE

Investors back Britain

The protracted process of separating from the EU was expected to loom over UK real estate long after Brexit day — yet, as Clive Bull discovers, investors bound for Britain are in buoyant mood

Myriad opportunities in the UK regions, including Newcastle, are inspiring fresh waves of capital

While UK real estate investment volumes were depressed in 2020, investor confidence is now driving the country towards a strong recovery, according to Will Matthews, head of UK commercial research at Knight Frank. “Last year we saw around £5560bn (€66-72bn) of transactions in the UK, which is a pretty good year actually, all things considered,” Matthews says, indicating a broadly even split between overseas and domestic capital. Brexit, he believes, is not the factor it once was. The pandemic has induced a period of reflection inspiring landlords and occupiers to ask deeper questions about the spaces they want and how they will use them. There remains some evidence, though, of a “Brexit discount”. “There is still a difference between what you might pay for a prime Central London office compared to say Berlin or Paris, and you might attribute that to Brexit, but it’s not a very big difference these days, so I don’t think people are making decisions on that basis alone. That gap has narrowed over the past year or so,” Matthews says.

The capital remains a safe choice for other reasons, adds Matthews. “Over the last couple of years, London has still been pretty liquid and I’d say many other markets don’t approach its liquidity even in their best years.” He says industry dynamism is also a factor — “the financial markets and everything that goes with that, but also the technology sectors and life sciences”. Jules Pipe, London’s deputy mayor planning, regeneration & skills, suggests this latter element is key. “Before COVID, we saw growing investment in medtech and laboratory space across the capital, which is of course accelerating now. The diversity of our population and the capacity of the NHS for medical trials and its unparalleled database puts London at the forefront of future global medical research, so we’re sure to see continued investment in facilities to support this.” Pipe says that while there has been some inevitable slowdown in construction resulting from the pandemic, planning activity has remained strong, particularly in offices and hotels, which reflects faith in London’s long-term resilience and intrinsic strengths. “London is a global leader for FDI and its attraction remains as strong as ever. Opening later this year, the Elizabeth line will add 10% capacity to central London’s network bringing an additional 1.5 million people to within 45 minutes of the heart of the capital. It has created the capacity and conditions for major new headquarters for, among others, Facebook, Deutsche Bank and Société Generale, allowing for the accommodation of more than 300,000 new jobs in key employment hubs including Liverpool Street and Canary Wharf,” he says. The City of London in particular is proving a Mecca for development activity, says Alastair Moss, chair of the City of London Corporation’s planning and transportation committee. “We have seen strong developer confidence in the future of the City of London with unprecedented levels of planning applications. Important-

ly, much of these new developments already have strong occupier interest or have indeed been pre-let.” The pandemic has embedded trends which were already developing within the market. Most noticeably, there has been a flight towards quality, Moss says. “Occupiers are more regularly demanding office space which includes flexible space for innovation and collaboration, as well as access to fresh air. Developments which include health and wellbeing aspects are more attractive and garner more interest from potential occupiers.” But there’s also plenty to be optimistic about in the rest of the UK. Jon Neale, head of UK research at JLL tips regional city centre offices as one to watch, adding that industrial has also seen the highest returns over the year, alongside the much sought-after retail warehousing. “Given their support from structural trends, the logistics and living markets will remain investors’ preferred options,” says Neale, “but a lack of supply suggests that it will be difficult for volumes to increase beyond this year’s total. In their search for yield and resilient assets in a higher-inflation and perhaps more uncertain world, investors will move into areas such as green infrastructure.”

In the North East, Jen Hartley, director, Invest Newcastle, says the city offers a number of opportunities for investors. Post Brexit and in the wake of the pandemic, Newcastle’s response to building back “better, bigger and greener” includes 90,000 government jobs into the city and Newcastle City Council plan to invest £50m in the city centre transform plan. In the industrial sector Hartley says rental and capital values are well above expected levels which is having significant positive impact on yields: “This is simple supply and demand and will be similar story right across the UK, driven by e-commerce and the desire to manufacture goods as opposes to purchasing from overseas.” Hartley also points out that despite COVID being heralded as the death of the office, the city has in fact seen over half a million sq ft (50,000 sq m) taken up during 2021. Turning to the south, Tim Hancock, chair of the Business South action group Regen South and planning and design company Terence O’ Rourke, says there are important reasons for investors to look at Central South. “Assets are relatively undervalued at the present time and represent a good investment opportunity. The economy of the Central South contains many world-class companies and key sectors which are well poised for growth such as life sciences, aerospace, marine and digital technologies.”

To the west, major regeneration projects are under way in Cardiff Bay and Cardiff city centre, and Vikki Beesley of Invest in Cardiff says yields have remained robust and investor confidence in the city is high, reflecting both the scale and ambition of the public and private sectors, and the levels of infrastructure being put in place. An analysis of future investment trends undertaken for the city by leading cities expert Dr Tim Williams outlines how some medium sized cities like Cardiff, which don’t suffer the same cost and congestion issues as the larger cities, are well placed to respond to the post-pandemic economy, and in tandem with this are likely to see more multi-use investments being brought forward.

London’s development plans are set to transform the skyline

[Photo credit: Didier Madoc Jones of GMJ and City of London Corporation]

Alastair Moss, chair of the City of London Corporation’s planning and transportation committee

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