Private investors and developers with net worth of £12 billion optimistic on UK real estate after prolonged macro-economic disruption

Private investors and developers with net worth of £12 billion optimistic on UK real estate after prolonged macro-economic disruption

Investec’s first private client sentiment survey looks at the attitudes of UK real estate investors and
developers towards the sector, with data gathered from 110 individuals with assets of £15m- £250m

• London is by far the most appealing location for UK real estate investment, with 97% of respondents seeing London as very or slightly appealing

• Resi for sale and rent are the asset classes viewed as the most appealing from an investment perspective over the next five years

• 42% of investors see retail as particularly appealing over the next five years, while 93% of developers expect to be involved in the sector in the next three years

• More than three times as many private clients believe that an opportunistic real estate strategy offers the best relative risk adjusted return today (29%) versus three years ago (9%)

• 69% of private clients believe a VAT regime that penalises refurbishment over new builds is an environmentally unsound policy

In recent years, High Net Worth Individuals have been operating against an unprecedented backdrop of macro-economic disruption, with Brexit, Covid-19, and now the Ukraine crisis and rising inflation. However, these challenging times have failed to dampen sentiment and can even be perceived as an opportunity, which reflects the entrepreneurial nature of the private client investor cohort, according to Investec’s first private client sentiment survey.

The UK’s stable economic and political environment is a key factor in this optimism and as a dominant global city and economic haven, 63% of private clients cite London as very appealing for real estate investment, putting it significantly ahead of Birmingham (46%) and Manchester (45%). Despite this, 83% of private clients think that the government’s commitment to Levelling Up will make the regions more attractive for real estate investment.

The residential sector was one of the best performing during Covid, and private clients believe there is more to come. 70% said that five year UK residential capital values would be either higher or significantly higher than the 13.1% predicted by Savills. London’s residential market is viewed especially favourably as an attractive market for real estate investment with 91% of private clients expecting Prime Central London returns to increase in the next five years.

Despite recent turbulence, 42% of investors see retail as particularly appealing over the next five years, indicating that they are considering returning to the sector and seeing potential value dislocation. 91% of investors and 89% of developers expect to be involved in the retail sector over the next five years. Offices have also undergone a period of significant disruption, although there is strengthening demand for office take up and 84% of investors and 80% of developers expect to be involved in the sector over the next five years.

These findings have been revealed in The era of real estate innovation: The 2022 private client sentiment survey, commissioned by Investec Real Estate, a leading UK provider of investment and development finance. Data was gathered from 110 private client property investors and developers with a total net worth of £12.2 billion that invest their own wealth into UK real estate.

William Scoular, Head of Private Client Lending, Investec Real Estate, comments: “Private investors and developers are the backbone of the property industry and in launching this latest research report, we were keen to seek the views of an influential group that has adapted to recent macro-economic turbulence and can provide a glimpse into the future direction of travel for UK real estate as they are often ahead of the game in spotting emerging trends.

“Despite recent uncertainties, private clients’ bullish outlook for UK real estate is highly encouraging and is reflected in our private client team’s record 2021/22, providing £515 million of financing to borrowers across the financial year. This reflects both the fundamentals of real estate as an asset class in which different sectors are underpinned by numerous long-term supportive trends, as well as private clients’ nimbleness and an ability to think creatively to unlock innovative opportunities.”

Other key findings include:

• Sustainability is now a top agenda point for pretty much all respondents, with 99% of respondents saying they faced external pressures on the topic of sustainability

• 84% either agree or strongly agree that it would be equitable to have the same VAT regime for new build and refurbishment activity, instead of the government’s current environmentally unfriendly system that penalises refurbishment and feels at direct odds with its ambitious net zero strategy

• 29% believe that an opportunistic real estate strategy now offers the best relative risk adjusted return, compared with just 9% three years ago

• 89% say the UK planning system has become more, rather than less restrictive

To view the full report The era of real estate innovation: The 2022 private client sentiment survey, visit: https://www.investec.com/en_gb/focus/private-clients-real-estate/2022-sentiment-survey.html

Investec’s first private client survey follows two Future Living reports, published in 2019 and 2021, the most recent of which looked at how the pandemic underpinned the UK ‘beds for rent’ sector’s evolution with data gathered from global institutional investors representing over £500 billion of AUM.

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