By Daniel Hunter
The UK real estate investment market is being constrained by a lack of available stock, according to a new survey by KPMG.
KPMG’s first Quarterly Real Estate Survey found that while appetite for investing in real estate has surged, with 82 per cent of respondents actively seeking investment opportunities in the next three months, stock remains incredibly constrained. 90 per cent of potential investors believe that current availability of investment opportunities is at a low or medium level.
KPMG also found that overall investment conditions have improved and the majority who had sought capital in the last three months had secured it on terms that suited their business. Respondents also said they expect access to finance to improve further over the forthcoming year, with over half believing it will become easier to access debt and equity capital.
“These results indicate that those in the UK Real Estate industry are adjusting to the ‘new normal’ and are moving forward. There’s real appetite out there in the market for investment opportunities, but it’s simply not being satisfied because there is a dearth of supply at the moment," Richard White, Head of Real Estate and Real Estate Tax, at KPMG in the UK, said.
“With capital available and obtainable, activity in the investment market could gather real momentum if the right stock begins to reach the market.”
While unsurprisingly the bulk of investors (74 per cent) said they are targeting prime investment opportunities, nearly a third also said they are looking at opportunities across a range of asset classes, with 48 per cent targeting secondary opportunities and 10 per cent targeting tertiary opportunities.
The performance of the wider economy continues to cast a shadow over the market, with 40 per cent naming it as the greatest challenge facing the industry.
“The real estate industry is showing signs of recovery in spite of a number of challenges such as concerns regarding economic recovery; tenant insolvencies; regulatory implications for equity and debt capital providers and the volume of real estate still controlled by the banks," Andy Pyle, Head of Real Estate Transaction Services, at KPMG in the UK, said.
“We are seeing our clients exploring more innovative deals and considering shifts along the risk-reward curve. This is evidenced by the wide range of sectors being considered by potential investors and their appetite for secondary and tertiary assets. We believe that the UK continues to benefit from being outside the Eurozone and is often seen by our overseas clients as a good location for an initial investment in Europe.
“However, prime assets remain king and the limited interest in opportunities outside the UK is a further example of the ‘flight to quality’.
“In our view, the optimism regarding access to capital is driven by a sense that the banks have gone a long way to identifying and working through the troubled assets and the risk of further major surprises is diminishing. Leaving aside the troubled assets, the industry has reverted to asset fundamentals and value-add strategies which are arguably more robust and attractive to debt providers and equity investors.”
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