Despite the macro-economic environment and uncertain pressures in today’s market, the longstanding merits of commercial real estate investments remain says Ramsey.
“From a long-term return perspective, commercial real estate has consistently proven its value and stacked up well against other asset classes. Data shows that real estate, and in particular private real estate investment, offers lower volatility and lower correlation to other asset classes, with a stable income profile and diversification benefits.”
For those considering an investment at this point in the cycle, areas to consider include offices, shops and hotels in London’s West End. These include trophy assets and those that rarely come to the market. Private investors or family offices able to hold these for several decades have the possibility for generational wealth preservation.
Other compelling opportunities for private investors include re-priced assets in the City. These offer strong potential for those motivated by returns, albeit at a scale more typically familiar to institutional capital.
“And don’t ignore regional cities,” advises Ramsey. “They can offer both the same return potential, and at a more digestible scale for most private capital.” In the so-called ‘Big Six’ of Birmingham, Bristol, Edinburgh, Glasgow, Leeds and Manchester, it took 18 years for average prime rents to rise from £20 to over £30 per square foot in 2018 but only another five years to climb above £40 in 2023, a rapid upward trend that JLL expect to continue. In Bristol, negotiations are already ongoing for leases surpassing £50 per square foot.
“Even under scenarios more modest than our current growth forecasts, prime offices in the Big Six will see double-digit unlevered IRRs over the next five years,” says Simon Verrall, head of national office investment at JLL. “These regions are poised to grow their share of the UK’s real estate investment scene as buyers increasingly recognise the opportunities and deploy capital in these dynamic markets.”
The UK benefits from high levels of transparency and liquidity, concludes Ramsey: “In JLL’s recent Global Real Estate Transparency Index, the UK once again topped the charts. It was the second-most traded global real estate investment market behind the USA, with more than £500bn transacted in the last decade. This means the market is extremely efficient in accurately pricing assets. So while this was painful on the way down, with sharp reductions in valuations through 2022 and 2023 as conditions deteriorated, it now stands us in good stead to enter the recovery cycle ahead of most markets as confidence and capital return.”