In the fourth of our blogs looking at how the UK’s decision to exit the EU is impacting key real estate locations, our experts in the US outline how the current lack of clarity opens the door of opportunity for investors who currently have capital to deploy.
Uncertainty also brings opportunity for real estate investors
High levels of political uncertainty are typically not attractive to real estate investors, particularly to institutional investors. However, what we are seeing is a number of investors who currently have capital to deploy and still want to allocate a percentage to real estate investments.
While post-Brexit uncertainty prevails, investors continue to be cautious about their exposure to UK real estate and are turning their attention to other gateway cities that are looking more attractive. These include cities such as New York, Los Angeles and Chicago, as well as cities in Germany and France. Clients are cautiously optimistic these gateway cities will provide enough diversity and value pending more clarity on what the outcome of Brexit negotiations will be for the UK. At the same time we are seeing a number of more opportunistic investors take advantage of the fall in sterling and depressed UK property valuations in the commercial space, which in certain instances offer a near 50% discount on pre-Brexit property values for investors. In particular, the sovereign wealth nations of the Middle East not only have a lot of capital to invest, but they also have good relationships with major financial institutions in the UK. These relationships will remain important as tough regulations on source of capital in countries such as the United States prevail, and therefore deploying capital for these investors in UK is more flexible. The flexibility of deploying capital in the UK, together with the currency advantage and lower property valuations means Middle East investors may see it as a major buying opportunity, albeit the currency and interest rate outlook for the UK remain high risk factors until we see more clarity on the details of the negotiations.
In terms of Brexit’s impact on the US Real Estate Investment Trusts (REITs) could benefit from investors looking for stable growth and dividend yields. REITS have historically been used as a safe haven for investors, particularly when treasury yields are falling. Current projections for REIT index growth are in the range of 4% to 6% of net operating income (NOI). On top of that add 3% average dividend yield and REITs are looking a particularly attractive option to direct investment in the real estate sector at present.