Nearly three in five (58%) real estate industry professionals believe that a change in UK government is the biggest risk to their investment appetite in the UK, compared to only 15% who selected a no deal Brexit. This is according to new research* conducted by JCRA, the independent financial risk advisor which works with clients in the real estate and private equity sectors, amongst others, to develop hedging strategies that reduce costs and protect returns.
The research showed that nearly all (92%) respondents operating in the real estate industry were actively focussed on making new investments in the UK in 2019. None of the respondents were concerned about currency volatility/sterling weakness as a risk to their investment appetite. In fact, less than one in ten (9%) were anxious about higher interest rates and just 6% were concerned about the availability of debt finance.
By comparison, the research overall, which included professionals from across the financial services sector, showed that nine in ten (90%) were actively focused on making new investments in the UK in 2019, with just 4% saying they were not doing so and 6% still undecided.
Shripal Shah, Head of Real Estate at JCRA, said: “Our research clearly highlights that there is concern within the real estate industry regarding the risk of change to the UK government. Uncertainty around planning policy and real estate taxation, such as stamp duty, are big drivers for this asset class. We were interested to note, however, that the industry is still committed to the UK despite ongoing Brexit uncertainty, the prospect of potential interest rate hikes and currency volatility. Perhaps more surprising is the sanguine view on the availability of debt finance. Many new lenders have come into the market in the past few years, including institutions and challenger banks, but it feels like debt liquidity could have reached its high point in the cycle already.
“The general consensus is that the European real estate sector is in late cycle. Valuations are high and there is a scarcity of attractive new opportunities. The continued trend towards alternatives including residential, hotels, flexible offices and student housing is a theme for 2019.
“Despite the lack of concern from the survey on FX risk, we are seeing a material increase in the number of enquiries from real estate clients who are evaluating and looking to hedge their FX risk. Currency volatility has impacted returns and asset managers are asked by investors to define their FX management strategy and justify their approach. Sometimes the right answer is to remain unhedged, but this needs to be validated through proper analysis.”
*Research conducted with 53 industry professionals at the JCRA Annual Economic Overview Breakfast 2019 on 31st January 2019