High percentage of concerns about change in U.K. government, says survey

Nearly three in five (58 percent) real estate industry professionals believe that a change in U.K. government is the biggest risk to their investment appetite in the United Kingdom, compared to only 15 percent who selected a no deal Brexit. This is according to new research conducted by JCRA, the independent financial risk adviser that works with clients in the real estate and private equity sectors, among others, to develop hedging strategies that reduce costs and protect returns.

The research showed that nearly all (92 percent) respondents operating in the real estate industry were actively focused on making new investments in the United Kingdom 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 10 (9 percent) were anxious about higher interest rates and just 6 percent 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 10 (90 percent) were actively focused on making new investments in the United Kingdom in 2019, with just 4 percent saying they were not doing so and 6 percent still undecided.

“Our research clearly highlights that there is concern within the real estate industry regarding the risk of change to the U.K. government,” said Shripal Shah, head of real estate at JCRA. “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 United Kingdom 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.”

Shah concluded, “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.”