Real Estate

Playing UK Property Is Game Of Patience

Tom Burroughes Group Editor London 13 February 2024

Playing UK Property Is Game Of Patience

Rises in UK interest rates during the past two years took the steam out of parts of a property market that had boomed during the pandemic. Valuations are attracting investors back. A firm with backing from names such as a family office in Saudi Arabia is part of the story.

Although the UK’s property market was buffeted by the rise in interest rates and volatility post-pandemic, there’s definitely “light at the end of the tunnel,” according to a London-based investment house working with family offices and institutions.

In November 2023, Oryx Real Estate Partners bought a five-acre logistics site in Milton Keynes in the UK’s Midlands, the first time Oryx entered the UK logistics space. Pembury Real Estate acts as development partner for the project, which has an estimated development value of between £25 million ($31.4 million) and £30 million. Oryx’s company’s investment pipeline comprises about £300 million of additional logistics sites, offices, residential blocks, and distressed assets offering opportunities, with deals valued at up to £50 million in advanced stages of consideration.

Saudi family offices were in the mix of investors. And that fact highlights how the UK is seen as an attractive diversification and investment play over the medium term, particularly after rising interest rates have taken the steam out of what had been a hot logistics sector during the pandemic. With oil-rich investors keen to diversify and ride the tech-driven changes of commerce, logistics makes sense.

The kind of wealthy families, and institutions that invest via Oryx aren’t hurrying to deploy capital as fast as some others might, and the firm – set up about three years ago – only decided to finally pull the trigger last year, Johan Eriksson, co-founder and managing partner, told this news service.

Oryx was set up around the time of the pandemic – “That was an interesting year,” Eriksson said with heroic understatement. “I have always wanted to do something like this. I wanted to set up [this operation] in the right way,” Eriksson said. Oryx makes a point about “transparency, integrity and professionalism,” he said. “It has come at the cost of speed of growth.”  

“The market was falling…and we hardly deployed capital at all and that was the right thing to do. And that is hard. But you can now definitely see light at the end of the tunnel. It [the UK real estate market] has normalised,” he said.

The kind of real estate investment that Oryx is involved in is not a quick-fire business – typically, it takes around 18 months to go from the initial investment ideas to executing a specific deal.

After a boom in logistics caused by the shift to online retail/home working in 2020, valuations surged. Industrial land values rose 163 per cent between Q1 2019 and Q1 2021, according to Knight Frank. Strong investor demand pushed prime logistics yields to new record lows in 2020, with long-leased distribution warehouses in the Southeast hardening by 25 basis points to 3.75 per cent. 

In more recent months, however, valuations have come off the boil to a more attractive entry point, Eriksson said. “We started looking at it [logistics] about a year ago.”

“Land values reduced dramatically and in parts of the UK they more than halved on the back of interest rate rises,” he said. Even so, rental revenues continued to grow, as did construction costs. 

“We realised that the logistics opportunity started coming back, more on the development land side than on the income side,” Eriksson continued.

That family offices from the Middle East – and elsewhere – are interested in such sectors is hardly news or unusual. As revealed by the Highworth Research database (this news service is exclusive media partner), Middle East-based family offices play a great deal in the space, such as Al Masar Investments LLC (Abu Dhabi); Almutlaq Group (Saudi Arabia); and Alsulaiman Investments (Saudi Arabia). 

Not just logistics
Away from logistics – covering a variety of property types – Oryx is also looking at the offices space. New UK energy regulatory requirements and the need for landlords to adapt will pull investment into the sector, Eriksson said. 

The firm is looking at large-scale build-to-rent residential as well.

“We look at potential cashflow streams that can provide good risk-adjusted returns,” he added.

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