Research by RSM shows that the pandemic and Brexit could both be acting as catalysts for rebalancing the traditional order of asset classes in real estate. Sentiment also highlighted that returns on investment in residential property will level up in some regions.
Data centres it seems will upset the traditional order of asset classes over the coming year. Whilst nearly 70 per cent of the 300 senior industry experts surveyed by RSM see industrial property as the main beneficiary of investment in the next 12 months, data centres featured as that which will see the second highest level of investment (56 per cent) usurping residential property as the third most favoured asset (44 per cent). The private rented sector featured as the fourth most likely asset to see a boost in investment (41 per cent).
Returns on investment in residential property will also level up as a consequence of the pandemic and Brexit according to the survey. 86 per cent believe the South West will see the greatest returns in the UK over the next five years. Asked to rate their top three regions, a further 82, 74 and 71 per cent saw the South East, Yorkshire and the North East respectively as the regions set to see the greatest increases.
Commercial property was viewed differently, with 86 per cent believing London will maintain its position as the region set to see the greatest returns.
Howard Freedman, partner and head of real estate at RSM said: ‘The global pandemic and Brexit have combined to present economic and geopolitical conditions and prospects that will change the real estate sector for good. Our survey supports the notion that both events could be acting as a catalyst for disrupting the traditional order of asset classes as seen with the rise of data centres; rebalancing where in the UK we will see the greatest returns on investment, particularly within residential property, and; as an accelerator to the decline of physical retail space.’
71 per cent of respondents predict that there will be more selective decision-making when it comes to real estate investment. In addition to this, almost half (47%) of those surveyed predict there will be increased investment in low risk assets or safe havens. This suggests that after a period of wide and diverse investment portfolios, there could be a trend towards a more targeted approach, and a greater need for specialist advice.
Howard adds: ‘With over 70 per cent of respondents suggesting that economic volatility would lead to more selective investment decisions, we’d estimate that medium to low risk investors will hold back on deploying funds until Q4 2021 although there is evidence that those with a higher risk appetite are looking to invest now.’
60 per cent of respondents expect demand for office space to decrease over the next two years, yet 81 per cent see demand for flexible office solutions to increase. 56 per cent saw changes to planning law as the single biggest factor to facilitate the government’s levelling up agenda.