Real estate investment manager LaSalle has said that the UK real estate market is defying the predictions of a post-Brexit blues, due to an abundance of liquidity, opportunities in urban logistics and factors such as high demand for serviced office space in London.
In its Mid-Year 2018 Investment Strategy Annual (ISA), LaSalle reported that both UK and Continental European real estate markets are growing thanks to their solid economic performance.
‘The UK real estate market has exceeded expectations in 2017 and in the first half of 2018, despite economic fragility and ongoing geopolitical uncertainty,’ commented Mahdi Mokrane, LaSalle Investment Management’s European head of research & strategy.
The possibility of a recession in the market caused by a Brexit shock has decreased, thanks to the UK’s independent monetary policy, its improved fiscal position, the continued strong and flexible labour market and its inexpensive currency.
In addition, ongoing low bond yields make income-producing real estate look attractive, while London continues to look appealing to investors thanks to high liquidity, transparency and deep human capital pools.
Good outlook for offices
The biggest growth was recording in the office sector. According to ISA, positive rental growth in London is expected from 2020 onwards.
The residential and industrial sectors are expected to provide positive rental growth, while retail rental growth is likely to be negative - or only marginally positive - over the next few years.
‘Looking ahead we believe there will continue to be an abundance of liquidity targeting both ultra-secure (annuity-like level) real estate as well as enhanced-return real estate,’ Mokrane added.
Continental European growth
According to ISA, Continental European real estate market will also guarantee a strong appeal for investors, given strong capital inflows, improved demand fundamentals and the spread property yields continue to offer over risk-free rates.
In this context, Spain is increasingly attractive as an investment destination, while rental growth prospects in the logistics sector are strong for France, Italy and Spain again.
Contrary to the UK, the retail sector is expected to register solid growth on the Continent in the next years. The office sector will experience a significant improvement over the next 18 to 24 months, followed by a consequent slowdown.
Jacques Gordon, global head of research and strategy at LaSalle, commented: ‘Our mid-year update indicates that core real estate continues to perform at an appropriate level, relative to other asset classes, and that the inclusion of real estate raises portfolio returns, for a given level of risk.’