Investment in UK alternative real estate assets reaches record levels

Investment volumes in alternative real estate assets – such as hotels, residential and care homes – reached a record 42% share of the overall UK market in Q1 2019, according to new research from Cushman & Wakefield.

Nigel Almond, Head of Data Analytics – EMEA Research at Cushman & Wakefield, said: “Overall we have seen £4.7bn invested in UK alternative assets during Q1, taking their overall share of the market to 42%. This is its highest share on record and follows a 29% and 35% share growth in each of the previous two quarters and underscores the continued demand for assets in these sectors.”

As well as being the highest quarterly proportion of overall investment on record, the £4.7bn invested in alternative assets represents a 47% increase on the first quarter of 2018. In fact, it represents the fourth-highest quarterly volume recorded and follows the continued upward trend in investment in this sector.

A total of £11.2bn of commercial real estate was traded in the first quarter of the year in the UK, some 20% lower on the same period a year ago. A lack of stock twinned with Brexit-related caution saw activity in the mainstream sectors – office, retail and industrial – weaken 39%.

Jason Winfield, Head of UK & Ireland Capital Markets at Cushman & Wakefield, said: “Investors are looking more broadly at the real estate market and while a flight to alternative assets is typically associated with late cycle strategies, the strength of the interest is unprecedented. The growing understanding and maturity of alternatives as an asset class is proving to be a significant driver for change. We can expect more fund raising for this type of asset this year as investors seek to capitalize on the opportunities available.”

Along with alternative assets, Central London has maintained its resilience in Q1 with trading in all asset types marginally higher over the quarter and annual trading 8% higher y-o-y at £23bn.

An uptick in investment from European cross border sources was also observed in Q1 across asset types, notably from Belgian, French and German sources. Over two thirds of this activity centred on alternative assets. With prime yields on the continent now lower than the UK, UK assets are demonstrating relative value for those backing the UK’s long-term fundamentals.

Almond concluded: “With the form of the UK’s exit from the EU still to be determined, levels of trading are expected to remain weak over the course of the year as prospective buyers cast a detailed eye over transactions. Whilst capital remains in the wings, greater due diligence and a lack of product is likely to stifle activity, with the focus expected to centre on better quality assets in core sectors and continued appetite for alternatives.

“Should we see greater clarity on the UK’s position relative to the EU emerge, we could see the release of pent-up demand and an uptick in activity.”