MIPIM 2016: Brexit was the inevitable buzzword and seen as the greatest risk factor facing investors at an Estates Gazette panel discussion entitled “Identifying risks and reaping rewards in the current cycle” at MIPIM.
A state of inertia is encompassing the UK real estate market and investment volumes are expected to be dampened for the first half of 2016 ahead of the Brexit referendum on 23 June.
“There are a number of investors waiting and not buying if they don’t have to, and it is the same on the sell side where they are not selling unless they really need to,” said James Lass, fund manager for the Schroders UK Real Estate Fund.
Lass added that the inertia in the market was the result of caution from domestic property owners. Foreign equity investors were largely undeterred.
The panel agreed that investors must be increasingly careful when making a purchase decision because they were operating in a market that is, or is close to being, “fully priced”.
“There is an inertia domestically. If people are nervous on their valuations, then generally people don’t sell and that affects transactional levels. But overseas investors take a more medium-term view on what the market in London looks like,” said James Cooksey, director of central London at The Crown Estate.
He added: “They are still drawn in by the capital’s fundamentals. That won’t change and London will still be in steady demand.”
As a result of the fierce pricing in the London market, despite a drop-off in transactional activity, Cooksey said that The Crown Estate had been focusing on investing in its current portfolio rather than expanding.
“We have been investing in what we have already and that is a sensible thing to do in a market that you consider to be close to fully priced. We think it best to proceed with caution, and we are in no rush to allocate money to standing investments right now.”
If pushed to invest in the current market, his company would focus on the regions, “which still have healthy occupational markets and strong income”, Cooksey said.
The panel agreed that the evolution of e-commerce and online retailing was creating most of the main opportunities within real estate and in particular within the logistics sector.
“There have been structural changes to retail and that brings about opportunities within logistics. You can’t separate the two anymore,” said Simon Durkin, head of UK research at BNP Paribas Real Estate. “E-commerce will change how we approach retail and also shopping centres.
“There are still opportunities where we see potential for rental growth,” added Veronica Gallo-Alvarez, fund manager of the European Property Growth Fund at Standard Life.
Alternative sectors, away from the traditional retail, office and logistics markets, are also proving popular but investors need to consider operational risk and fully understand the area they are investing into, he said.
The panel:
- Simon Durkin, head of UK research, BNP Paribas
- James Cooksey, director of central London, The Crown Estate
- James Lass, fund manager, Shroder UK Real Estate Fund
- Veronica Gallo-Alvarez, fund manager – pan European, Standard Life
- Chaired by Damian Wild, editor, Estates Gazette
In partnership with:
- BNP Paribas Real Estate
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