Nearly two-thirds of institutional real estate investors reconsidering UK investments

Written by Jack Gray

01/11/2023

Almost two-thirds (64%) of UK institutional real estate investors are considering moving their investment abroad, according to research from Gallagher.

Its study found that institutional real estate investors responsible for their company’s asset management strategy believed that several factors were affecting their investments.

Nearly nine in 10 (86%) stated that projects they had invested in had experienced significant disruption over the past five years, while over a third (37%) said they believed the level of risk in investing in UK cities had risen since the pandemic.

Supply chain issues were the most common factor causing disruption, cited by 41% of respondents, while 19% said it was down to a change in city centre working patterns and 29% cited a fall in demand for city developments in the UK.

Gallagher noted that many investors become involved at the construction stage, and they were having to review their investment and plans for projects before they have even been completed.

Over a fifth (21%) said they either were, or were considering, repurposing buildings usage, with 62% of those repurposing developments from commercial to residential.

Some are being repurposed at construction stage, and others post completion, causing investors risk profiles to significantly change, Gallagher stated.

It warned that the research raised concerns about the viability and growing risk of investment in UK cities.

The study found that, over the past five years, 44% of investors had pulled investments, with 45% believing they will not achieve the returns expected and 34% expecting to make a loss.

Nearly two-thirds (65%) said there was decreased demand for UK property development, 44% felt UK property was no longer profitable enough and 37% said political stability was a concern.

“Real estate disruption clearly poses a severe threat to the future of investment in UK cities, with key institutional investors facing greater risk,” said Gallagher director & head of sustainable real estate, Dominic Lion.

“Ongoing delays, changing working patterns and rising interest rates are making it difficult for investors and developers to see a tangible reward on current projects, making the UK less attractive for future investment and investors risk profiles changing more regularly.

“A shift in working habits – from office to hybrid – following the COVID-19 pandemic is evidently decreasing demand for commercial development in UK cities, as projects begin repurposing sites from commercial to residential. This trend is actively impacting returns for firms, and driving a significant shift in investments moving overseas.

“Any firm impacted by this disruption needs to consider the risk management implications of their changing investment profile, particularly if they are looking at assets overseas, and should speak to a specialist insurance broker.

“They will be able to advise on their risk profile across commercial and residential asset classes and different geographies, as well as helping to eliminate long-tail risk from the purchase or sale of property, enabling investors to free up capital for the next commercial opportunity.”

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