The volume of private equity real estate (PERE) deals in the UK fell by a third in the 12 months following the EU referendum vote in the country, contrasting with a 31% rise in the rest of Europe, according to new research from alternative assets analyst Preqin.
The value of transactions in the UK fell by a quarter compared to the previous year, compared with a 80% increase across the rest of the continent, the data specialist said.
'In the immediate wake of the UK-EU referendum, the UK saw private equity real estate deal activity decline sharply,' commented Oliver Senchal, head of real estate products at Preqin. 'Fund managers were uncertain of how the outcome would affect the real estate landscape in the UK, and many chose to delay dealmaking activity given the uncertain situation.'
Some sectors were particularly hard hit, with the number of office and retail transactions completed in H2 2016 falling from 41% in H1, while the aggregate value of the deals fell by 43%.
This contrasted with the rest of Europe, where aggregate deal value more than doubled (+116%) from $18.8 bn (€15.9 bn) in H1 2016 to $40.6 bn (€34.4 bn) in H1 2017.
Nontheless, in recent months, UK deal flow has recovered slightly, showing an increase from 186 completed deals in H2 2016 to 201 completed deals in H1 2017, and from an aggregate deal value of $10.4 bn (€8.8 bn) to an aggregate deal value of $17.5 bn (€14.8 bn), according to the report.
'As the effects of the referendum have become clearer, deal activity in UK real estate has rebounded, leading to an uptick in H1 2017,' added Senchal.
UK has 'core role'
Despite the decline in deals, Preqin said that the UK remains central to the European PERE industry, with a third of fund manager and two-fifths of investors in the region based there. Over the last decade, of the $210 bn (€177.9 bn) raised by fund managers in Europe, $108 bn (€91.4 bn) has come from those based in the UK.
The number of UK-focused funds raising capital has increased from 26 in July 2016 to 41 in July 2017, including 21 funds that have started fundraising post-referendum.
'Despite continued uncertainty over the ultimate ramifications of the referendum, UK-focused fund managers have continued to take advantage of dealmaking opportunities,' said Senchal.
'A number of UK-focused funds have come to market in the year since the vote, and the fundraising outlook seems positive. Looking ahead, we may see activity continue to rebound as fund managers seek to deploy the record amounts of dry powder available to them, but the long-term future of the asset class still remains uncertain while negotiations are ongoing,' he concluded.
