Survey shows UK investors shifting funds from retail to residential preperty
Over a third of UK real estate investors (35%) see long-term residential investments as the best alternative to retail property if they move out of the troubled sector in the next year, according to a survey by MSCI.
After long-term residential assets, the survey showed that industrials and mixed-use property are the next most popular replacements to retail in portfolios, with 22% of investors saying they would opt for each of these sectors. A further 11% of investors indicated that they would choose short-term residential as a possible substitute for retail property.
The survey, conducted last month at MSCI-IPF Property Investment Conference in Brighton, highlights how the slide in UK retail property valuations is reshaping attitudes on real estate sector allocations within portfolios. Valuations in retail property have decreased by 16.4% since December 2007 when accounting for net investment and capex, while capital growth across all sectors, on average has been broadly flat at +0.7% over the same period.
Sectors like residential, on the other hand, have seen much better performance with capital growth of nearly 80% on a like-for-like basis.
Ken O’Brien, Head of Client Coverage, EMEA, comments, “UK retail valuations have been going through a sustained period of decline since the global financial crisis, and brief rallies haven’t repaired the overall trend, led by the shifting shopping and spending patterns of consumers.
“Through this period, retail has remained a significant part of portfolios, but if the market trend continues, investors may choose to consider other, more resilient options. Although it may be difficult to exactly replicate the positive attributes that successful retail investments historically provided, the changing real estate landscape does provide other options; whether that be the growth in multi-use developments, or the inflation-hedging characteristics of residential assets.”