Investec Real Estate has released its second Future Property report and it states that private clients with UK real estate are more optimistic than two years ago.
The report, which includes data from 110 high-net-worth individuals and entrepreneurs with a total net worth of more than £6bn ($7.6bn), also found that interest rates are unlikely to deter investors.
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Key findings from the report
- The residential for rent and purpose-built student accommodation sectors have had the highest rise in investment activity since 2022;
- Development activity has surged by 23 percentage points for industrial, 16 percentage points for residential, and 13 percentage points for office spaces;
- According to 64% of respondents, UK real estate capital values are at or near their lowest point, and
- When building or investing in real estate, 42% value social impact over environmental issues (16%).
Within Investec’s second Future Property report, private clients who have exposure to UK real estate are more positive than they were when Investec conducted its first poll two years ago, despite an unparalleled period of macroeconomic turbulence.
In the meantime, investors have increased their exposure to UK real estate despite the past 18 months’ higher interest rate environment.
The report indicates a significant recovery for the office sector, which is reflective of the value-add skills of the private client cohort and asset repricing.
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By GlobalDataFrom an investment standpoint, offices are now ranked third, up from seventh place in 2022; 35% of respondents chose offices in 2024, compared to 23% in 2022.
Moreover, over the past two years, investment in various asset classes has increased, with 72% of respondents optimistic about the UK real estate market, with London being the most appealing city.
Although there has been more investment in the office, retail, and industrial sectors, the study found that 62% of respondents still see land costs as the largest barrier to investment.
Higher interest rates have prompted investors to actively invest in residential real estate for sale and rental income, with 96% of all investments going into these asset classes; PBSA being the most popular choice.
Furthermore, developers’ quality-focused methods have shifted dramatically as a result of the unpredictable environment, with a threefold increase from 13% in 2022 to 33% this year, showing a flight to quality.
The survey demonstrates a distinct change in focus from the ‘E’ to the ‘S’ in ESG, with 42% of respondents naming social impact as the most important ESG aspect when building or investing in real estate, compared to 16% who chose carbon footprint. However, decreasing the environmental impact of real estate is still critical, with four-fifths (80%) saying that minimum energy efficiency standards regulations should be a legislative priority.
Shivani Goolab, head of private client real estate at Investec, stated: “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.”
