The spectre of Brexit undoubtedly weighs heavily on the minds of many in the European Real Estate industry, as a source of gloom but, on the contrary, for some, of opportunity. While there is a general post-Brexit slump in sentiment towards the UK, investors continue to see value in real estate across many parts of the rest of Europe. Return expectations are however being scaled back, and the importance of active asset management as a means to access income is being talked up.

The process of underwriting this risk is feeding through in more cautious approaches to deploying capital, equity and debt.

In Europe demographics, urbanisation and affordability are fuelling interest in the residential private rented sector (PRS). Similarly the retirement / assisted living and healthcare sectors will need to grow to meet the future needs of the ageing population. Notably student accommodation tops the sector lists where interest is broadening beyond the UK and Germany to Portugal, Spain, CEE and the Nordics.

In Europe in general we are definitely seeing a more risk-averse attitude. Leverage is lower. The definition of prime has narrowed, and while growth remains weak, ever-closer attention is being paid to quality of income. REITs, as income plays, “will be more in demand” and have moved to trading at premiums after Brexit in perceived safe havens such as Germany and Scandinavia. Meanwhile, “residential is on the radar and is undervalued because it gives long-term, stable returns”, say operators in those markets.

Long-term income is highly favoured by insurance companies and pension funds with liabilities to match, never more so in the UK. Strong income assets are going to be worth more than they were pre-Brexit, and ones which were heavily dependent on rental growth are going to be worth less.

On the down-stream side, the residential sector within the UK remains buoyant and looks set to continue to be so given the continuing head-line shortfall of available affordable residential property for purchase albeit high value property demand has plateaued because of the change in the rates of stamp duty.

The pressures created by urbanisation and affordability, meanwhile, have pushed the residential private rented sector (PRS) near to the top of the preferred sector classes -It’s a compelling opportunity because of the seemingly limitless demand.

As the cost of purchasing properties within the inner transport zones in London stretches beyond the reach of most young professionals, PRS is increasing being seen as a natural ‘relief valve’ to cope with this shortfall.

Such Real long-term income assets such as PRS, also represents a shift towards large-scale residential developments, forward-funded or acquired by institutional investors attracted by the surety of long-term rental income and capital value growth.

The other part of the residential sector that will increasingly become more important is that of social and affordable housing. In order to provide affordable products, home sizes are continuing to shrink. This trend is taking off around the world, with developers looking to adopt a “matchbox” model as part of their development strategy, where demand justifies, focusing on apartments with footprints of under 200 square feet. This is reflects the changing demands from younger occupiers who are willing to accept less personal space as long as they have access to shared social facilities such as gyms, kitchens, living areas, and even office space (live-work models) within the same building.

Modern methods of construction can also be part of the solution to affordable housing as modular construction becomes the norm. Insight International are working on residential and healthcare modular solutions in UK and Middle East and India, with the production of factory-standard pre-cast walls and slabs, pre-fabricated MEP and bathroom and kitchen modules becoming increasingly the norm.