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JLL Investor Confidence Survey – H1 2018

The latest JLL Investor Confidence Index highlights the adverse impact Brexit uncertainty is having on investor sentiment.

The index is a weighted average of the questions we ask in the bi-annual survey, which include expected total returns in the coming year, risk appetite and whether they plan on being net buyers or sellers over the next 12 months. A leading gauge of investor sentiment and historically, it was a leading indicator for transactional activity.  However, since the EU referendum, there has been a divergence between investor sentiment investment volumes. Whilst capital flows into real estate bounced back quickly following a dip in 2016, investor sentiment has  fallen back to its 2016 level.

 

When asked ‘Has your view of Brexit changed over the past 12 months?’, 41% of respondents now had a more negative view of the impact of Brexit on the economy and real estate sector, and 33% said their view remains that it will have an adverse effect on the real estate sector and economy.

71% of respondents expect total returns to be lower in the coming 12 months compared to the previous 12. This is unsurprising, given the moderation in capital value growth in many sectors.

Despite the political uncertainty and the economic slowdown, a significant amount of capital continues to target UK real estate. This is highlighted in the fact that 67% of respondents expect to the net investors in real estate over the coming 12 months, with 39% targeting top regional cities, 37% targeting London and the South East, 20% considering all locations and 4% targeting secondary towns and cities.

The survey also indicates the Alternative sectors remain at the top of investors’ lists. When asked which sector will they be looking to increase their allocation over the next 12 months, Alternatives* was chosen by 46% of respondents. Within this group, PRS was by far the most chosen sub-sector. Indeed, investment into the private rented sector hit £730 million in H1 2018, double the amount in H1 2017.

That said, the nascent sector remains challenging to enter for many investors. When asked ‘What are the main challenges for the private rented sector to develop further?’, the top three reasons were low yields (37%), lack of development sites (22%) and achieving scale (20%).

 

*Includes PRS, Student Housing, Healthcare, data centres, retirement living, self storage and car parks

 

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