GCC investors eye long-term gains through UK real estate regeneration

For GCC investors seeking attractive returns, past price reductions in some old and poorly-invested UK building stock means that investment in buying, repurposing and enhancing these properties can be a profitable strategy.

We are seeing more of these types of investments being realised by GCC investors, and they are increasingly working with local partners that can find these opportunities. These can include small buildings to large regeneration projects and many market commentators share the view that the fall in prices seen in some older stocks has largely run its course meaning that now may be an optimal time to invest.

The long-anticipated fall in the Bank of England base rate and long-term fixed interest rates are giving investors new confidence. Add to this a recent period of rising commercial and residential rent levels and this becomes an exciting mix of factors.

We expect an uptick in transaction activity, with the return on cash deposits falling and property investment becoming more affordable, creating real benefits for those buying and selling real estate assets.

GCC investors focus on commercial property

Looking back, the 10-year average annual GCC investment into UK commercial property stands at around $3.4bn, and going forward, we anticipate investment volumes in this asset class could quickly grow to over $4bn annually, owing to this alignment of favourable economic factors.

Over the next 12 months, the combination of more affordable financing, an improved outlook for increased investment returns, and a more stable political outlook will create a unique economic opportunity for the UK’s real estate sector with pent-up GCC capital, driving an influx of investment.

Green investments gaining ground

The general UK regulatory direction and tenant demand based on corporate social responsibility factors continue to drive demand for well-designed, flexible and sustainable buildings. GCC investors are becoming more aware of the environmental credentials increasingly expected for UK buildings and realise that investments in such schemes are beneficial not just for the environment but also can realise a green premium, which work by professional valuation bodies estimate to be between 8 per cent and 18 per cent for BREEAM rated buildings compared to equivalent buildings without the equivalent green credentials.

Taking the UK office sector as an example, some prices of older stock have fallen by as much as 30 per cent and in so doing have created an opportunity for profitable ‘brown to green’ capital expenditure to improve sustainability standards.

Regenerating the regions

There are expected to be opportunities throughout the UK regions, especially those linked to cultural and sporting exports, such as Premier League football. This has long-attracted Gulf investment in the UK.

The growing number of GCC club owners is driving further investment for the regeneration of sports grounds, surrounding properties, and hospitality infrastructure, such as the $384m project currently underway to expand and upgrade Manchester City FC’s stadium with the addition of a 400-bed hotel and a 4,000 square metre co-working space for local businesses.

This will likely also increase the city’s attractiveness for smaller-scale investment from the GCC, where investors growing awareness of UK regions means they will look for opportunities to capitalise on still ambitious but smaller schemes.

GCC investors are increasingly recognising some compelling advantages of regeneration projects. From capital appreciation and higher rental returns to portfolio diversification and positive social impact, these projects align perfectly with long-term income and capital growth strategies.

By hiring local advisers who can identify the right projects, GCC investors can take advantage of both and reduce the overall risk while delivering positive social value to the real estate landscape in the UK. Such regeneration can be a win-win for communities and investors.

The writer is the director of Real Estate Finance at the Bank of London and the Middle East (BLME)