With Brexit hanging in the balance, a general election now weeks away, persistently low interest rates and high street store closures soaring, many investors’ eyes are on property. Buy what are investment companies’ views on the sector and what does the future hold for this asset class?
With assets totalling £15.9 billion, investment companies investing directly in property make up a large part of the investment company industry. Across the five sectors investing directly in property, these companies give investors access to a considerable variety of different property types, ranging from offices and shopping malls to supermarkets, social housing and warehouses.
At £10.7 billion, the Property – UK Commercial sector accounts for more than half (67%) of direct property-focused assets under management. The sector, with an average yield of 5.1%, may also be attractive to income-seeking investors in the current low interest-rate environment, and investment companies in this sector now stand at an average 1% discount.
What impact is the political uncertainty and Brexit having on UK property?
The impasse at Westminster and the prospect of a change of government is destabilising for the market. The UK is a vibrant, capable economy with a skilled workforce and many comparative strengths, but the continued delayed have paralysed business and are adversely impacting the economy.
The most immediate impact of the continued uncertainty on the real estate market is the collapse in transaction volumes which have fallen sharply and are now below long-term averages. While there will be continued near-term disruption and the potential for ongoing volatility in markets, the sector is in relatively good health and offers much for the medium-term investor. There is plenty to like about UK real estate, not least the yield premium, income growth in most sectors outside of retail, good levels of occupancy for quality stock and a relative absence of typical ‘late cycle’ behaviour in the lending and development space.