Alternative real estate overtakes UK offices ahead of Brexit deadline

Alternative real estate assets like student housing and healthcare have been the most active part of the UK property investment market so far this year, overtaking offices in terms of transaction volumes.

According to Cushman & Wakefield research, alternative properties – including data centres, healthcare, hotels, self-storage and student housing – represent 37% of year-to-date UK commercial real estate investment volumes.

All other sectors saw their shares fall, including offices which dropped to second place, representing 33% of deals.

Greg Mansell, head of UK research and insight at Cushman & Wakefield, said: “This collection of specialist real estate, infrastructure and long-income deals has steadily grown its share of the investment market since the global financial crisis.

“In the last few years, we have seen this trend accelerate as retail and office performance has weakened and we expect the appeal of alternatives to continue.”

Jason Winfield, head of UK and Ireland capital markets at Cushman & Wakefield, said: “Investors like alternatives for different reasons. For some, the abundance of long leases is the appeal.

“For others, the high returns associated with operational responsibility is the draw. Tellingly, investors are willing to invest at scale when they find the right opportunity irrespective of the property type.”

Transactions overall have been falling. During the second quarter, volumes dropped 23% to $12bn compared with the same period last year.

Cushman & Wakefield attributed the phenomenon to “Brexit trepidation”, but said the increase in alternatives activity showed “the UK is nonetheless attracting a new wave of foreign investors and the alternative sector is proving buoyant”.

Winfield said the decline in overall investment volumes is in part due to institutions decreasing their activity.

“A slowing UK economy and a fast-approaching Brexit deadline has made those already heavily invested in the UK more cautious,” he said.

European hotels buck the trend

According to CBRE, the increased demand from investors for operational and alternative real estate has caused European hotel transactions to increase despite overall transaction volumes falling.

Total investment in Europe declined by 7.8% year-on-year during the 12 months to the second quarter of 2019, but hotel investment saw an increase of 5.3%, totalling €24.3bn.

The data showed that UK investment volumes were down 26% on the same period of the previous year, yet it remained the largest hotel investment market in the region, capturing 26% of capital deployed.

Miguel Casas, head of investment properties, continental Europe at CBRE, said European hotel investment volumes have remained strong despite the slowdown in wider commercial real estate.

“Operational and alternative property types remain in high demand, and there is an expectation that this trend will continue due to sustained income growth,” he said.

“Investors have notably become more active in secondary locations when availability of large asset deals and portfolio deals have been scarce, and single-asset sales have especially been a driver in this successful quarter for the hotel market.”

Paul Collins, head of hotel investment properties for UK and Ireland at CBRE, said: “While UK hotel transaction volumes are down for the 12-month period to the second quarter of 2019, the appetite amongst investors remains strong.

“This is particularly the case from overseas buyers who want to take advantage of the current weakness in sterling.

“However, the lack of activity is largely down to the shortage of stock on the market and this situation is unlikely to change in the run-up to the Brexit deadline of 31 October.”

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