Despite an unprecedented period of macroeconomic volatility, Investec’s second Future Property report revealed that private clients with exposure to UK real estate were more optimistic than they were two years ago.
At the same time, the higher interest rate environment of the past 18 months failed to dissuade investors from increasing their exposure to real estate.
Investec’s Future Property 2 report, a global survey of 110 high-net-worth individuals and entrepreneurs with a combined net worth in excess of £6bn, who are all developing or investing in UK real estate.
Offices were the third most appealing asset class from an investment perspective, selected by 35% of respondents in 2024 compared to 23% in 2022.
The percentage of respondents investing in each asset class increased in the past two years, apart from retail, which remained the same.
Overall, 72% of respondents were optimistic, and 99% believed the UK was an appealing market.
London remained the most appealing city – especially prime Central London, which 95% of respondents said was appealing.
Almost two-thirds (64%) of respondents believed UK real estate capital values were at, or very near, the bottom.
Amid this high level of investment, one of the most revealing findings from the survey was an increasing appetite for development.
Activity increased 23% in industrial, 16% in residential and 13% in office versus two years ago.
However, developers also displayed a greater concern for almost all obstacles in the sector, with land costs the biggest barrier to investing by far; 62% of respondents said it was an obstacle today, compared with 33% in 2022.
Shivani Goolab, head of private client real estate at Investec, said: “Our latest private client report presents a compelling case for UK real estate, with a clear shift in sentiment from resilience against a volatile environment to one poised for activity.
“Although challenges remain, strong total return performance looks set to be driven by the supply/demand dynamics in multiple sectors, most noticeably residential, alongside the UK’s enduring appeal, asset repricing and an improving economic backdrop.
“While respondents’ views on the current investment landscape are more positive now than in 2022, they also demonstrate a belief that the outlook will improve further following next month’s General Election and expected interest rate cuts, which should translate into a higher level of activity and improved returns across all sectors.
“Reflecting the value-add expertise of this cohort, the report reveals a major bounce back for the office sector and the growing opportunity for development, in particular the repurposing of older office assets. Where there is an opportunity to create prime office space, competition is high.
“Where there is the opportunity to acquire good value secondary or tertiary office space, or underutilised retail space, there is a clear appetite for repositioning, primarily into residential.”
