Knight Frank group chairman says medium to long term investors will stay in UK
Alistair Elliott, senior partner and group chairman at Knight Frank, has been focused on developing the firm’s global strategy since he took up the position in April 2013. He specialises in the office market sector, and throughout his career has focused on the office agency and development business.
During his career he has been involved in a wide range of projects, with particular highlights being the acquisition of headquarters for Texaco and Readers Digest, both at Canary Wharf.
You have seen a lot of up and down cycles during your long career in the real estate industry. Do you think the British vote to leave the European Union (EU) was the most critical one?
In the business world, I believe it is the most transformational event since the Lehman Brothers [collapse which triggered a global financial crisis in late 2008]. I have to hope that as a result the British will be more entrepreneurial as a group of people and as a government. For real estate, people have lots of choices. We need to ensure Britain remains in an attractive position for business and for people going forward.
What is your view on the market outlook in Britain?
I believe Britain in the medium term will be a very good place for investment. Will there be short term concerns? Yes, that is evident in the falling British pound. I believe the government will begin to re-establish itself on a journey that is not a direct part of the EU. Once stability comes back, people will make more tangibleinvestment decisions in the medium to long term.
Do you think more British property will be offered for sale in Hong Kong?
Yes, in pure cash terms. For anybody in Asia, London property is 10 per cent cheaper overnight because of the [depreciation] of the sterling. That will attract some people, others will want to wait for a clearer picture presented by the government and the market before they make any investment decision.
Will there be a shift in capital flows in future?
There was a general reduction in investment in the first half of this year as [there was] uncertainty leading up to the Brexit referendum in June. It was also due to the fact that the investment that poured into Britain reached a record last year.
According to Real Capital Analytics(RCA), inbound capital to Britain dropped 53 per cent to US$14.7 billion in the first five months of this year from the same period last year.
Outbound capital from Britain, however, soared 37 per cent to US$12.3 billion for the period January to May compared with last year. This includes all property types covered by RCA; office, retail, industrial, hotel, multi-family apartments and development land.
How will the nature of investors change amid the post-Brexit shockwave?
Any change in market circumstances will change the profile of investors. Last year, we saw capital coming from sovereign funds, institutional investors and high net worth individuals. They are taking different positions at different times of the market.
Uncertainties will lead institutional investors to be more cautious while sovereign funds tend to take a very long term view and I suggest to say they will be least affected.
High net worth individuals will be attracted by the short term adjustment in currencies and will review their investment policies. They are likely to be quicker to react than institutional investors who will adopt a wait-and-see attitude to wait for the market to settle. Sovereign funds will generally continue their strategy because they are long term investors who look for 10 years or more.
When will the short term turbulence end?
We are entering into new territory. We understand that it will take about two years for Britain to leave EU.
Will there any panic selling among investors who prefer liquidating their assets before the British pound fall further?
I don’t believe there will beany panic selling in the market. We have been doing business with professional investors focused on commercial markets in the six months leading up to the referendum date. And as I said, those investors make decisions not for the next six months, but for five to 10 years. Even if there is volatility in the short term, I don’t believe you are going to see a flood of assets put on sale in the market. It is just a short term loss and the prospects remain reasonable. I would sit tight and urge anybody to just wait.
Do you think multinational corporates will relocate to other countries after Britain’s decision to leave?
There are lots of things that remain unclear at the moment. Whether corporates decide to stay or expand in Britain, we will have to wait and see. I don’t anticipate there will be a significant number of decisions where people will suddenly leave Britain, which has a consumer market of 60 million people. Britain also has an exceptional pool of talent.
What kind of property do you suggest for investors keen to enter the market right now?
In the short term, focus on sectors offering long term leases because you can get through the uncertainty. We canstill have income.