Retail, logistics and alternatives will power the UK market in 2018 regardless of Brexit, delegates heard at PropertyEU's Outlook 2018: Europe and UK Investment Briefing, which was held in London on Thursday.
'There are good structural reasons to hold retail assets,' said Michael Neal, head of UK investment at TH Real Estate. 'There may be no strong rental growth in retail, but there is good solid income. We are all aware of the headwinds, but the core assets are very interesting. The quality end of retail has been performing well for us and we expect that to continue in 2018.'
The two key words are experience and convenience: retail parks and shopping centres that are able to attract customers despite the lure of e-commerce on the one hand, and local shops that cater for city living on the other.
'The retail sector has been overlooked, but it is providing stronger income than industrial, so it is likely to be more active as a sector in 2018,' said William Matthews, partner, global capital markets research, Knight Frank.
The logistics sector has great momentum and will deliver in terms of rental growth, experts agreed. 'Last-mile logistics in the UK is still the sector to invest into,' said Mark Rajbenbach, partner, Taylor Wessing.
Alternatives advance
Alternative sectors have also attracted investors’ attention over the past year and there is no sign of that interest flagging. 'All our clients are increasingly looking at alternatives,' said Neal. 'They provide good returns and, from a liquidity perspective, one third of all transactions are now taking place in the alternative space.'
Investors have an expectation that alternative sectors will become institutionalised, but ‘some underestimate the risks of running operational businesses like hotels or healthcare,’ said Jos Short, executive chairman, Internos Global Investors.
UK investment activity in 2017 is set to be around the £60 bn mark, beating 2016 levels, according to Knight Frank. Looking beyond the high-profile office investments by foreign investors, mainly Chinese, in London, the reality is that investment activity has been high across the country.
'Domestic investors have accounted for 50% of activity in the UK,' said Matthews. 'They have been just as active, but just focusing on different assets, sectors and places.'
The UK’s regional cities present good opportunities, experts agreed. 'Centres like Manchester, Birmingham and Leeds offer an attractive yield premium,' said Neal. 'From a risk/return perspective, they are a good place to be.'
The regional office market is also interesting because demand has been strong. 'We have been selling out of the secondary market and have more prime in our portfolio now,' said Michael Walton, chief executive, Rynda Property Investors. 'But we will focus on opportunities in regional centres in the office sector in the UK. We are very positive on the outlook for 2018.'
Uncertainty over Brexit might make for a challenging market, said Matthews, 'but don’t underestimate the many different pools of capital that are out there targeting the UK'.
