- Investors are actively targeting UK real estate, but lack of supply is dragging down market activity
- Capital is available and obtainable, with conditions forecast to improve over the forthcoming year
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.
Richard White, Head of Real Estate and Real Estate Tax, at KPMG in the UK, said: “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.
“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.
Andy Pyle, Head of Real Estate Transaction Services, at KPMG in the UK, said: “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.
“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.”
Other key findings from KPMG’s first Quarterly Real Estate survey include:
- 82 per cent of respondents are actively seeking investment opportunities in the next three months
- While all respondents are seeking UK opportunities, only 6 per cent are seeking opportunities outside Europe
- Opportunities are being sought across a wide range of sectors: 61 per cent of respondents are seeking commercial opportunities; 32 per cent industrial; 48 per cent retail; 45 per cent residential; 42 per cent development and 6 per cent hotels.
- Only 10 per cent of respondents view the current availability of opportunities as high, with 45 per cent viewing availability as medium, and a further 45 per cent viewing availability as low.
- Of the 44 per cent of respondents seeking capital in Q1: 52 per cent sought debt, 24 per cent sought debt and equity and 24 per cent sought equity
- More respondents found it easier to secure debt (19 per cent) than those that found it harder (12 per cent)
- For those seeking debt, expectations were largely met: debt term – 88 percent; debt amount: 63 per cent; debt covenants – 69 per cent.
- For those seeking equity, again expectations were largely met with 70 per cent getting what they expected across the term, amount, covenants and costs categories.
Forecast market activity:
- 58% believe access to debt capital will improve in the future
- 53% said they agreed or strongly agreed that equity capital will improve
- 58% believe that investment activity will improve.
Notes to Editors:
**The KPMG Real Estate Quarterly Survey surveyed 48 senior representatives from KPMG’s UK base of real estate clients with gross asset values held ranging from less than £200 million to over £5 billion covering all major sectors; a range of geographical coverage from UK only to Global and with principal activities including property companies, fund Managers and institutional investors.
This is the first survey of KPMG’s real estate client base, which will now be published on a quarterly basis.”
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KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with over 12,000 partners and staff. The UK firm recorded a turnover of £1.8 billion in the year ended September 2012. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 156 countries and have 152,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services.