Momentum is building in the UK real estate investment market, helped by the wider economic recovery and capital markets reopening, according to a new survey by KPMG.
KPMG’s Quarterly Real Estate Survey* found that some of the historical barriers to growth in the industry have lowered and access to capital and investment opportunities has improved. 68 per cent of those surveyed by the firm said they had sought and secured capital in Q2, and 75 per cent rated the availability of investment opportunities on the market as medium to high.
These factors may be behind the heightened sense of optimism imbuing the industry. Over 60 per cent of respondents said they expect access to debt and equity capital to improve further over the next 12 months and investment activity to rise.
However, concerns about the conditions attached to capital remain. 30 per cent said their expectations on debt interest costs had not been met and 21 per cent said they thought it was harder to secure debt in Q2 than in the previous quarter.
One in five said they had not been able to raise the amount of equity hoped for, suggesting that conditions remain stringent.
Completing deals also remains a significant challenge and one in three (36 per cent) said they found the process harder this quarter.
Richard White, Head of Real Estate and Real Estate Tax, at KPMG in the UK, said: “We have seen a significant resurgence in the real estate market over the last quarter; the appetite created by the availability of equity and debt is starting to be satisfied by increased supply. Pricing is starting to become an issue, particularly in relation to central London, but this is forcing the more opportunistic end of the investor base to widen their geographical horizons.”
Andy Pyle, Head of Real Estate Transaction Services, at KPMG in the UK, said: “Investors are hunting down real estate opportunities in the UK market and are keen to invest in a wide range of property types. It is positive to see more stock becoming available, and this will help to get the whole market moving.
“Banks have also proved they are willing to lend to those investing in good quality assets and this availability of finance has helped to stimulate the industry’s wider recovery.
“However, on the flip side it is still more challenging to get a deal over the line; lenders and vendors alike are increasingly demanding in the timetables they set and the conditions they attach. Unfortunately we see no reason for this trend to let up, especially given concerns around pricing."
Other key findings from KPMG’s Quarterly Real Estate survey include:
- 70 per cent of respondents are actively seeking investment opportunities in the next three months.
- While nearly all respondents are seeking UK opportunities (95 per cent), respondents’ interests outside Europe remain limited with 10 per cent considering the US and Asia Pacific and 4 per cent considering markets in the Americas (excluding the US).
- Opportunities are being sought across a wide range of sectors: 63 per cent of respondents are seeking office opportunities; 45 per cent industrial; 39 per cent retail; 49 per cent residential; 41 per cent development and 18 per cent other alternative classes.
- Investors continue to favour prime assets (82 per cent) over secondary (49 per cent) and tertiary (6 per cent). A third of respondents are targeting assets across multiple classes and only 12 per cent of respondents have revised their targeting strategy over the last 3 months.
- 4 per cent of respondents view the current availability of opportunities as high, with 71 per cent viewing availability as medium, and a further 25 per cent viewing availability as low.
- 36 per cent of respondents found completing a transaction harder than 3 months ago versus 14 per cent who found it easier.
- Of the 68 per cent of respondents seeking capital in Q2: 46 per cent sought debt, 14 per cent sought debt and equity and 40 per cent sought equity.
- More respondents found it easier to secure debt (42 per cent) than those that found it harder (21 per cent).
- For those seeking debt, expectations were largely met: debt term – 81 percent; debt amount: 84 per cent; debt covenants – 75 per cent; debt return/Interest costs – 63 per cent.
- More respondents found it easier to secure equity (37 per cent) than those that found it harder (15 per cent).
- For those seeking equity, again expectations were largely met: equity term - 63 per cent; equity amount - 70 per cent; equity covenants – 56 per cent; equity return/interest costs – 59 per cent
Notes to Editors:
*The KPMG Real Estate Quarterly Survey was issued to KPMG’s UK base of real estate clients and contacts in August 2013 to collate the views of the UK industry on Q2 and future intentions.
Respondents are drawn from right across the industry covering: all major sectors; a range of geographical coverage from UK only to Global; gross asset values of real estate held ranging from less than £200 million to over £5 billion; and with principal activities including Property Companies, Fund Managers, Institutional Investors and Advisors amongst others.
The survey will be issued quarterly.
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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.