What next in the UK public real estate markets? – Panel Discussion
Date & Time: November 19th 2015 6:30pm
Venue: Kirkland and Ellis client conference suite, “The Gherkin” 30 St. Mary Axe | London EC3A 8AF
OxRES was delighted to host the latest in its series of educational events, “What next in the UK public real estate markets?”, in association with Kirkland & Ellis LLP. OxRES assembled a panel of experienced and distinguished real estate practitioners to share their insights into this compelling and timely topic.
- Matt Elliott (partner, Kirkland and Ellis)
- Hemant Kotak (senior analyst, Green Street Advisors)
- Allan Lockhart (head of property, NewRiver Retail REIT)
- Patrick Long (head of RE IBD, Lazard)
- Alex Moss (CEO, Consilia Capital and visiting professor of real estate and planning, Henley Business School) – keynote speaker and panel moderator
Alex Moss kicked off the evening with some background on the relative sizes and different valuation methodologies of the US and UK listed real estate markets (the US being earnings based rather than NAV based). He also reviewed the historic spread of yields to debt costs and considered the possible impact rising rates might have.
Among other topics, the panel then debated a few key areas of the market:
1) Valuations – the speakers provided their thoughts on where valuations were likely to head in the coming years. It was noted that interest rate rises do not always negatively impact valuations in the public real estate markets. The panelists were generally quite optimistic that the market conditions were still supportive of pricing at par or even at a slight premium to NAV, given the large spread currently available between yields and debt costs, which will provide a buffer. There was also the view that over the coming years, rate rises will hopefully be accompanied by an environment of rental growth, so that would counteract any slight yield expansion.
2) Funding – there was a general consensus that REITs are likely to employ lower leverage over the next few years and that bond issuance will continue to increase in the UK. In addition, there have been more new sources of debt finance in recent years, such as debt funds and insurance companies, so there is likely to remain ready access to debt. However, there is increasing polarisation between the haves and have-nots, in terms of accessing debt finance at competitive costs.
3) Sector focus – it was noted that a much larger share of the US listed real estate market is sector focused than in the UK. There is a discussion over what benefits this brings, such as being closer to the market and tenants, and whether this should create outperformance. It was also discussed whether we will see the creation of PRS/ resi REITs over the coming years and the consensus was we would in time see this market develop once the stock was built.