What to expect in the 2020 UK real assets market

03 March 2020

by Simon Hampton Head of Real Estate Corporate Finance, Real Estate Deals Leader, Partner, Corporate Finance

Email +44 (0)7990 506355

by James Pincus Partner, Corporate Finance

Email +44 (0) 7798 641753

December’s general election provided a much-needed shot in the arm for the UK real estate and infrastructure markets as the country’s political outlook for the next five years and Brexit approach became clear.

And while our recent Emerging Trends in Real Estate (ETRE) report noted 70% of Europe’s senior property professionals anticipate the UK’s ability to attract international talent will fall following Brexit, this hasn’t yet been the case.

As UK rents continue to hold and residential property prices rally, we expect to see decisive action to allay Brexit doom and gloom and maintain momentum. The pressure is on new chancellor Rishi Sunak to deliver an 11 March budget that adds up while allowing spending to rise.

Infrastructure spend

The government confirmed plans to spend £100 billion on the UK’s infrastructure. HS2, electric buses, bike lanes and 5G are just some of items on the shopping list.

This spend aims to level up every part of the country - facilitating trade, development and opportunities beyond London and the South East. But the need to respond to climate change is also a factor. And as the UK prepares to host the 26th Conference of the Parties (COP26), an event seeking an international response to the global climate emergency, this goal appears more topical than ever.

Alignment of investor and government interests

So how does this fit with some of the themes we’re seeing in the market?

Both the government and investors are taking an interest in the UK’s aging population. Those taking part in our ETRE survey on 2020 real estate say this area is a top priority for them. An aging population with very little provision for their housing post-55 means this area is an attractive one for investors with a long-term view.

Environmental transition

Elsewhere public pressure is tightening on environmental, social and corporate governance (ESG) requirements. Investors are under pressure to respond. However sustainable projects are hugely competitive and overbid - resulting in lower comparative returns.

Electric vehicles – both cars and buses – are amongst those most likely to transition first with £500 million already pledged towards the charging network.

Others may focus on efficiency, an asset’s overall sustainability or proximity to transport hubs. So projects tackling water usage, minimising single-passenger car travel and heating (including biomass, electric and the carbon capture process) could be on the rise.

Structural change in retail makes logistics white hot

Another big shift driven by consumer habits means that logistics topped the ETRE 2020 rankings for where investors are choosing to put their cash. As the amount of goods bought online increases there is interest in ‘big-box’ warehouses, but the market’s attention is on that ‘final mile’ of delivery. Supply simply can’t keep up with demand. In urban locations the sector is competing with other high-value uses such as residential. While some investors think that pricing for existing industrial assets is too high, few are avoiding the sector altogether. We expect to see a rise in the development and repurposing of assets to industrial and logistics uses - they offer strong prospects for returns.

Less talk more action

There is certainly no shortage of activity, opportunity and investment in Real Assets, but it’s an industry where talk can outweigh action. Some of the ideas, government promises, or technological implementation hoped for and expected can take a long time to materialise, or never appear at all.

We are seeing a real manifestation of progress in the transition to sustainable energy. High profile organisations are committing to being net zero by 2025. We’ll be on the lookout for positive change and progress, though it can often be slower to arrive than we’d like.

As the government gears up to end the last decade of austerity, we expect to see growing momentum to UK real estate and infrastructure investment.

Download the full Emerging Trends in Real Estate report here.

by Simon Hampton Head of Real Estate Corporate Finance, Real Estate Deals Leader, Partner, Corporate Finance

Email +44 (0)7990 506355

by James Pincus Partner, Corporate Finance

Email +44 (0) 7798 641753

Read more articles on