Investment in the UK Real Estate Market

By Alan A. Samson and Richard Wilkinson

Relative to other classes of investment, real estate in the UK remains strong and continues to outperform equities. At the end of 2001, unleveraged returns were circa 7%. As equity markets continue their decline and interest rates remain low, the UK real estate market remains a sound and popular destination for U.S.investment.

Contributing factors:

London's position as Europe's premier financial centre

High levels of liquidity

Strict planning controls and building standards which help minimize the risks of falling capital values

Relatively low taxation and the exemption of foreign investors from capital gains tax

Institutional, long-term (15 years +) leases which favour landlords, incorporating upward only rent reviews

Low interest rates, currently 4%

In 2001, foreign investment in UK real estate amounted to £5.7 billion, representing almost 20% of total investment. A recent report determined that US investment in UK real estate dominates, accounting for £2.3 billion or 40%, followed by Ireland, the United Arab Emirates, Australia and Germany.1 U.S. opportunity funds recently active in the UK market include AEW Capital Management, Apollo International Real Estate Fund, Blackstone Group, GE Capital Real Estate, J E Robert, Doughty Hanson, Lehman...