Property investors managing increased risk – Knight Frank
There are signs that UK property investors are seeking to increase their exposure to risk, says Knight Frank in its latest UK market outlook.
In the past, investors would manage risk in the early stages of the economic cycle by acquiring safe, prime property, and then move up the risk curve as economic recovery emerged. Prime property is in short supply, however, so many property investors who want to acquire may have to start buying good or medium-quality property. This means moving immediately to medium-risk assets – a nervous experience for many, the firm says, when we have yet to see statistical evidence of an economic recovery.
In addition, Knight Frank says, several areas of the property market have ongoing, structural problems. There is an oversupply of Grade B office space outside city centres, the firm says; the retail market is adjusting to “seismic changes”; and some regional markets are highly exposed to the retrenching public sector.
Buying into risk is an integral part of the investment game, the firm says, even in boom times; this year will be about managing this risk, “something the property industry has always been much better at than we care to admit”.
So, how to manage this risk? For some investors, for whom covenant is key, it is a case of compromising on lease length; for others, location may be the priority. And some investors will stick to what they know best, relying on their in-depth knowledge of a particular sub-sector. Whichever you choose – none of these approaches are ‘better’ – the important factor is “that there is a strategy for managing the risk,”, the firm says. “Once this is in place, investors can capitalise on the pockets of opportunity that exist in any market, whatever stage the cycle is at”.
