Brexit boon for domestic property investors

Domestic property investors have been able to land cut price assets following the withdrawal of overseas competitors from the UK during the run up to Brexit according to Legal and General Investment Management’s Head of Real Assets.

Speaking at our event in London Bill Hughes said that uncertainty surrounding the UK’s withdrawal had created opportunities for domestic investors like L&G: “As a domestic investor I’m finding more opportunities in the UK because the international capital is not here so much. In the short term we’re probably buying assets that are worth 10% less than if international investors were here.” [emaillocker id=”71749″]

However concerns about the UK, which peaked around the time that Exiting the EU Secretary of State Dominic Rabb quit his post in November, are still a headache: “We can’t influence the outcome but we just want the uncertainty to go away. It always creates opportunities for people to defer decisions, which has been happening.”

Tony Brown, Head of Real Estate at M&G, told delegates that Asian investors’ sentiment on London property dimmed at the end of last year.

The first quarter of 2019 had seen a 50% drop in investment in London compared to the final three months of last year, he said: “The difference in sentiment occurred around November when it became clear that Theresa May’s deal would not get through Parliament.”

Asian investors particularly have started to focus on other European markets, Brown said, pointing as an example to $4bn of Korean money targeting Paris that would have been focused on London a year before.

But he demonstrated M&G’s commitment to London by pointing to how the asset manager has recently purchased a ‘tired’ office building in Clerkenwell, located close to a station on the new Crossrail line. M&G are planning to refurbish the building and add new floors when its existing tenants move out in two to three years’ time.

Rebecca Taylor, Development & Investment Director at Long Harbour, said the post-Brexit dip in London asset prices means the capital has become a more attractive option for the build to rent specialist: “Brexit has helped us compete against the housebuilders. We will start to see a switch in the investment to focus on London.”

The UK’s regional cities will benefit from great devolution via the establishment of combined authorities headed by metro mayors, said L&G’s Hughes: “London is a better place for having more devolved powers. The same will happen in Newcastle, Sheffield, Bristol and Cambridge. This is profound because all those cities have experienced several decades of under-investment, but newly empowered mayors will seize the moment to make their cities a better place. New powers will tip things more in the way of those cities than before.”

M&G’s Brown also said that the contraction of average lease lengths means that landlords will have to take greater responsibility for the upkeep of their properties: “In most cases landlords have to get a lot more involved with the buildings they own because it’s not something that the occupier will take care of.”

These costs will have to be factored into investment underwriting, he said: “Any leakage from gross returns has a big impact on the amount investors receive, so we have to be more operationally focused.”

Taylor said Long Harbour’s projects include Europe’s first smart city, which is being lined up for the site of a redundant power station near Southampton. The developer is working with Cisco, IBM, Vodafone and Oxford Robotica on the redevelopment of the former Fawley power station which is bought in 2015.

She said the parking for the 1,700 home new town will be on the former footprint of the station’s turbines, enabling the rest of the site to be pedestrianised. [/emaillocker]