Nearly nine in 10 (86%) stated that projects they had invested in had experienced considerable disruption over the past five years
Around two-thirds (64%) of UK institutional real estate investors are considering moving their investment overseas, according to research from Gallagher.
Its study found that institutional real estate investors responsible for their firm’s asset management strategy believed that a number of factors were impacting their investments.
Nearly nine in 10 (86%) stated that projects they had invested in had experienced considerable disruption over the past five years, while more than a third (37%) said they believed the level of risk in investing in UK cities had increased since the pandemic.
Supply chain issues was the most common factor causing disruption, cited by 41% of respondents, while 19% said it was down to a change in city centre working patterns and 29% cited a drop in demand of city developments in the UK.
Gallagher noted that many investors become involved at the construction stage, and they had to review their investment and plans for projects before they have even been completed.
More than a fifth (21%) said they either were, or were considering, repurposing buildings usage, with 62% of those repurposing developments from commercial to residential.
Some are being repurposed at construction stage, and others post completion, causing investors risk profiles to significantly change, Gallagher added.
It cautioned that the research raised concerns about the viability and growing risk of investment in UK cities.
The study found that, over the past five years, 44% of investors had pulled investments, with 45% believing they will not achieve the returns expected and 34% expecting to make a loss.
Around two-thirds (65%) said there was reduced demand for UK property development, 44% felt UK property was no longer profitable enough and 37% said political stability was a concern.
Real estate disruption clearly poses a severe threat to the future of investment in UK cities, with key institutional investors facing greater risk, said Gallagher director & head of sustainable real estate, Dominic Lion.
Ongoing delays, changing working patterns and increasing interest rates are making it difficult for investors and developers to see a tangible reward on current projects, making the UK less attractive for future investment and investors risk profiles changing more regularly, Lion said.
A shift in working habits – from office to hybrid – after the pandemic is evidently reducing demand for commercial development in UK cities, as projects begin repurposing sites from commercial to residential. This trend is actively affecting returns for companies, and driving a considerable shift in investments moving abroad.
Lion added: Any company affected by this disruption needs to consider the risk management implications of their changing investment profile, especially if they are looking at assets abroad, and should speak to a specialist insurance broker.