The commercial real estate market in the UK is likely to maintain a stable outlook for several years going forward and offer opportunities for Korean institutional investors, a UK real estate investment expert said Wednesday.
The British government is to formerly notify the EU on Wednesday of its intention to leave the economic bloc, from which the nation is to start a two-year negotiation for the exit of EU, or “Brexit.”
Even in the worst scenario of a “hard Brexit” such as the UK losing full access to the EU market with no freedom of movement between the UK and the EU, areas such as long-leased retail, the privately rented residential sector and mezzanine lending are expected to outperform over the long term, according to Mahdi Mokrane, head of research and strategy for Europe at LaSalle Investment Management, a Chicago-based international asset management firm specializing in commercial real estate investment.
Mahdi Mokrane, head of research and strategy for Europe at LaSalle Investment Management, in Seoul, Wednesday.
“Despite the EU referendum, there was a strong link between UK economy and EU economy. Despite the headlines and negotiations, at the end, they will come to an agreement that will be mutually beneficial,” Mokrane said in a press conference in Seoul.
“If we take a long-term view as Korean pension funds, there are opportunities in core prime properties both in the UK and the rest of EU. Pricing today is relatively the key.”
The second opportunity for Korean investors is a mezzanine opportunity, or debt investing on high quality assets, because such investment requires a very conservative and low-risk strategy, said Amy Aznar, head of debt investments and special situations at LaSalle.
Their visit to Korea is in line with Korean institutional investors’ recent moves to increase the portions of their investment funds to commercial real estate in overseas markets, to beat the low interest rate environment.
Mokrane said investors can expect 4 to 4.5 percent yield from the prime real estate sector in the UK where the 10-year government bond yield was a little higher than 1 percent as of the fourth quarter of 2016.
Property cap rate, or yields on prime property minus the 10-year government bond yield, were about 3 percent, which is quite attractive, he said.
By Kim Yoon-mi (yoonmi@heraldcorp.com)