UK - UK institutional property investors are considering making more domestic investments, according to CB Richard Ellis Investors, as continental European holdings are becoming increasingly overweight thanks to wild currency fluctuations.
The combination of weaker sterling and a 50% discount on property prices are making the UK property market a lot more attractive to domestic and foreign institutional investors, alongside better transparency, liquidity and the maturity of the UK market, according to Sabina Kalyan, senior director of European strategy at CBRE Investors.
"Even given the near-term risk to leasing markets because of the economic downturn, the UK can still look attractive. German open-ended funds are certainly in the market and I think that is partially a function of currency," said Kalyan.
"For UK pension funds, [currency fluctuations mean that it is more expensive for them to go into the eurozone. It increases the relative merits of the UK market and the relative merit is that [the UK property market] has repriced more than continental Europe," she added.
According to Kalyan, investors could buy properties in the UK at up to a 60-70% discount from what they were worth two years ago, although currency fluctuations may force yields down and prices up as more capital enters the market.
Commenting on whether currency fluctuations are likely to affect pension funds' investment decisions, Kalyan said: "Not so much the pension funds because they tend to be longer-term and, because they have multi-assets across many countries, most of them will tend to have a sophisticated currency hedging overlay that sits on all their investments and dampens out some of the fluctuations."
Kalyan said she expected currency fluctuation to have more of an effect on the investment decisions of the private equity fund universe.
"I definitely think some investors will be more opportunistic, who see the current financial disruption as an opportunity, because in a market where there are very few debt-backed buyers and equity is very nervous and patient. Those that are willing to get in can exploit distressed pricing and the currency fluctuation is another thing they can exploit," said Kalyan.
That said, she does not believe investors who are hesitant about re-entering the market are waiting for currencies to settle down, but rather thinks they are waiting for broader financial market conditions to stabilise.
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