Almost three quarters of UK property investors plan to move up the risk curve in 2014, according to the annual Global Investor Sentiment report from Colliers International. The report found that 74 per cent of UK-based investors said they were likely to take more risk in 2014, with many choosing to adopt an opportunistic strategy across all property sectors.
Over 500 global investors, from sovereign wealth to private equity firms across the United States, Canada, Latin America, Asia Pacific, Europe and the Middle East, gave Colliers their outlook at a global and regional level for 2014 and beyond. The results highlight a number of key indicators suggesting strong investor appetite for real estate assets, heightened confidence among global investors and increased risk tolerance, even in areas where the economy is less certain.
Discussing the findings of the report, Tony Horrell, CEO of Colliers International in the UK and Ireland and report author, said: “Given the weight of overseas money, UK institutions have found it difficult to compete in Central London given fund performance constraints but they are now moving up the risk curve from core to core plus assets.”
Positive economic news boosts investor sentiment
Increasing momentum in the UK and global economies has led the majority of UK respondents (87 per cent) to assert that UK property investment conditions will improve in the next 12 months (57 per cent globally). Property fundamentals and economic growth prospects scored highest on the list of factors influencing investment, suggesting that investors are beginning to look beyond risks associated with the sovereign debt crisis and ever-tighter regulatory regimes.
Similarly, 70 per cent of respondents expect volumes to increase in 2014, and of those, 15 per cent expect them to increase by more than 10 per cent. Improved investor sentiment has also led to 73 per cent of UK respondents planning to expand portfolios over the next six months. Only 7 per cent plan to reduce holdings.
Horrell continues: “Whilst economic recovery, improving occupier markets and strengthening investor confidence should lead to higher investment volumes in 2014, the big issue for investors will be finding opportunities. While there is increasing appetite for risk, the more liquid ‘safe haven’ markets will continue to attract substantial international capital, particularly in the gateway cities. Institutions, particularly pension funds, will continue their search for long-term income to meet liability matching requirements, which will continue to draw some into niche and specialist sectors.”
Investor focus remains domestic, with one-third of respondents investing overseas
UK institutions and overseas investors accounted for 68 per cent of UK property acquisitions so far in 2013. The US was the top international buyer of UK property (£4.6 billion Q1-Q3 2013), with China the second-largest investor (£1.6 billion), having already more than doubled the amount invested in 2012.
With year to date UK investment volumes in 2013 almost 20 per cent ahead of the same period of 2012, a decisive 93 per cent of UK respondents said that their primary investment target over the last 12 months has been the UK domestic market; with 30 per cent also investing elsewhere in the EMEA region. Only 21 per cent of UK investors have invested further afield in Asia, the Americas or Oceania. Outside London, nearly half of UK investors (49 per cent) targeted Manchester for and Edinburgh was also a focus with 41 per cent of investors looking beyond the risks associated with the Scottish independence referendum in September 2014. Leeds and Birmingham scored 40 and 39 per cent respectively.
As we approach 2014, only 20 per cent of respondents plan to focus outside the UK next year, and just 4 per cent plan to look beyond the EMEA.
Cash will remain a key driver of the UK market
The availability of commercial property debt in the UK remains limited although 65 per cent of UK respondents were positive about the likelihood of using leverage in the future. Around 54 per cent of those surveyed confirmed improvement in debt conditions in the last six months, but only 44 per cent see further easing of underwriting standards over the next 12 months, with only 20 per cent expecting finance costs to moderate.
Walter Boettcher, Colliers Chief Economist and Report Author added, “The intension to use debt leverage in the future may prove to be wishful thinking in the short term; but cash buyers will no doubt seek to refinance their holdings to release cash when debt conditions ease over the next few years. While debt remains available for the right product, investors do not expect underwriting standards to ease significantly and are exhibiting a degree of caution around the withdrawal of quantitative easing and the timing of rising interest rates.
“Substantial cross-border funds have been raised and the pressure to invest these monies will directly drive capital growth in the most liquid and transparent markets, and indirectly drive growth in a number of recovering regional markets.”
The report goes on to reveal the most popular global sectors by region. Offices remain the most popular sector to invest in. In the UK, a substantial number of investors will be adopting an opportunistic strategy, although offices have dominated investment products for 2013 accounting for 50 per cent of property acquisitions so far. The second most popular sector was industrial and logistics, which is also the favoured sector for US and Latin American buyers. Canadian investors prefer shopping centres, whilst Europe and Asia have shown greater preference to residential investment.
Colliers top investment highlights for the UK Market were:
• 73 per cent of UK respondents plan to expand portfolios over the next six months.
• Vast majority of the UK-based investors (74 per cent) likely to take more risk, with almost 20 per cent suggesting they would be highly likely to take on riskier investments.
• Investors focus will remain domestic (80 per cent).
• CBD offices are the preferred investment product (50 per cent).
• Top target cities: London, Madrid, New York, Tokyo, Glasgow and Paris
• 65 per cent of the UK respondents confirmed the likelihood of using leverage in the future. However, the UK market is ‘cash’ driven and likely to remain so through 2014.