Nearly two thirds (64%) of the UK’s leading institutional investors are reconsidering their UK property investments and thinking of shifting their focus overseas due to ongoing disruption in the UK real estate sector, according to research from global insurance broker Gallagher.
Changing working patterns, interest rate rises and inflationary pressures were some of the key factors cited by the 300 real estate investors questioned for the study who said they were reconsidering their UK investment strategies.
Some 86% of respondents said projects in the UK had experienced significant disruption in the past five years, with more than a third (37%) of investors saying they believed the level of risk in investing in UK cities had increased since the pandemic.
Supply chain issues (41%) was the factor most commonly cited by investors reconsidering UK investments, followed by a fall in demand for city centre developments (29%) and a change in city centre working patterns (19%).
One fifth of survey respondents (21%) said they either are, or are considering, repurposing the usage of buildings, with three in five (62%) of those respondents weighing up repurposing developments from commercial to residential.
Dominic Lion, director and head of sustainable real estate at Gallagher, said: “Real estate disruption clearly poses a severe threat to the future of investment in UK cities, with key institutional investors facing greater risk. Ongoing delays, changing working patterns and rising interest rates are making it difficult for investors and developers to see a tangible reward on current projects, making the UK less attractive for future investment and investors risk profiles changing more regularly.
“A shift in working habits – from office to hybrid – following the Covid-19 pandemic is evidently decreasing demand for commercial development in UK cities, as projects begin repurposing sites from commercial to residential. This trend is actively impacting returns for firms, and driving a significant shift in investments moving overseas.
“Any firm impacted by this disruption needs to consider the risk management implications of their changing investment profile, particularly if they are looking at assets overseas, and should speak to a specialist insurance broker. They will be able to advise on their risk profile across commercial and residential asset classes and different geographies, as well as helping to eliminate long-tail risk from the purchase or sale of property, enabling investors to free up capital for the next commercial opportunity.”
