How AI Is Impacting Investment Into The UK

Artificial Intelligence (AI) is transforming the way institutional investors approach investing in the UK. From risk management to portfolio optimisation, AI can help institutional investors make more informed decisions, reduce costs and improve returns. In this article, we will explore some of the ways AI is changing institutional investment into the UK.

1. Enhanced Risk Management AI-powered risk management tools can analyze vast amounts of data to identify potential risks in a portfolio. This includes analysing financial statements, market trends, and economic indicators to provide a comprehensive risk assessment. By using AI-powered risk management tools, institutional investors can make more informed decisions and minimise risks in their portfolios.

2. Improved Portfolio Optimisation AI can help institutional investors optimise their portfolios by analysing vast amounts of data to identify investment opportunities. This includes analysing macroeconomic indicators, company financial statements, and market trends to identify undervalued assets. By using AI-powered portfolio optimisation tools, institutional investors can build more diversified portfolios and maximise returns.

3. Enhanced Trading Strategies AI-powered trading algorithms can analyse vast amounts of data to identify trading opportunities in real-time. This includes analysing market trends, news, and social media sentiment to identify market trends and trading opportunities. By using AI-powered trading algorithms, institutional investors can execute investments more efficiently and with greater accuracy.

4. Improved Compliance AI-powered compliance tools can help institutional investors comply with regulations and avoid potential fines. This includes analysing regulatory requirements, monitoring transactions, and identifying potential compliance risks. By using AI-powered compliance tools, institutional investors can reduce compliance costs and improve their overall compliance posture.

5. Better Decision Making AI-powered decision-making tools can help institutional investors make better investment decisions. This includes analysing vast amounts of data to identify investment opportunities, monitor portfolio performance, and provide real-time insights into market trends. By using AI-powered decision-making tools, institutional investors can make more informed decisions and improve their overall investment performance.

In conclusion, AI is transforming institutional investment into the UK. From enhanced risk management to improved portfolio optimisation, AI-powered tools are helping institutional investors make more informed decisions, reduce costs, and improve returns. As AI technology continues to evolve, we can expect even more innovations in institutional investment, making it easier and more efficient for investors to manage their portfolios in the UK.

What is a ‘reserved investor fund’? and could it actually stimulate investment into the UK?

To truly achieve levelling up, right across the uk, it is imperative that further investment is secured into large scale opportunities, particularly around infrastructure and real estate. There is in excess of £3trn of UK funds alone, the challenge is often deploying these into suitable well managed projects which make good fiscal sense. Unfortunately the UK systems, often mean that for UK based businesses, it can actually prove to be more expensive to deploy funds in UK based projects than it is for overseas opportunities.

UK government is therefore in the process of consulting with the Real Estate Investment sector on creating a reserved investor fund (RIF). A RIF is a proposed closed-ended vehicle for non-retail investors which we believe could be attractive to UK-based financial institutions when thinking about real estate investment.

The period of consultation appears to respond to calls from sector leaders to close the gap in the UK’s existing funds range whilst providing an alternative to the offshore structures often used by real estate fund managers.

Last year, as part of a planned change to UK funds regime, the government said it would explore options to introduce internationally attractive onshore professional investor regimes of unauthorised fund structures.

The government is looking to see if it should introduce the RIF, along with several questions including those relating to tax, eligibility and notification criteria, and branding.

It is expected to be aimed at professionals, including high-net-worth retail, and institutional investors, and could see the creation of new vehicles next year.

The model is to be based broadly on Luxembourg’s Reserved Alternative Investment Fund (RAIF), which is an investment fund that can invest in all types of assets. It qualifies as alternative investment fund (AIF) and is not itself subject to CSSF product approval. RAIFs must appoint an authorised external Alternative Investment Fund Manager.

We therefore believe that A whole spectrum of UK fund managers from SMEs to larger firms will be entitled to benefit from the efficiencies of the RIF. Managers will avoid having to go offshore with all the challenges, inefficiencies and costs of dealing with multiple legal, tax and regulatory regimes.

The RIF can be a platform to help level the nation up, driving institutional capital back into the UK. An example of this could be into affordable housing and city-centre regeneration projects, as well as accelerating our nation’s infrastructure and green industrial revolutions.

Prop-Tech

Here in the UK, we are fortunate to have truly world-class real estate and tech sectors, however, is there scope for the two sectors to be doing more together?

Prop-Tech is technology which is accelerating processes within the property sector which includes renting, buying or managing property. Prop-Tech solutions can also have positive commercial benefits for developers and investors, where decisions around site acquisition, funding and demand could be made simpler, more efficiently and far more accurately. But is it being used?

The global Real Estate industry is one of the most important sectors of the global economy with key parties operating within in, including: financial institutions, contractors, developers, retail operators, industry, public sector along with asset operators and banking. However, it is one of the least digitized industries with little investment in innovation and technology over the decades.

One of the biggest reasons for this also becomes one of the biggest barriers for the future success of Prop-Tech, and that is the culture within the real estate sector. Property is an old sector where people typically acts in more traditional ways. There are currently some excellent platforms and products on the market which have been derived through data and AI however, the issue is that most property professionals within the sector do not necessarily accept or appreciate that a problem exists, so for Prop-Tech companies, the challenge is convincing these organisations that the gaps exists for these technologies.

The good news is that we see some key areas where positive change can help increase the use of tech within the sector which would also have excellent economic benefits. Good quality innovative approaches can support challenges across our planning system, community engagement, large-scale regeneration projects, the private rental sector, social housing and achieving net zero through sustainability.

Government should also be waking up to embrace Prop-Tech in dealing with some of these incredibly outdated approaches, the planning system alone – we are seeing developers waiting 18 months for some planning decisions in the UK because we have old manual archaic systems which have not evolved in decades.

We would like to see further Government opportunities – not just for funding but also the chance to embed tech within processes including procurement, consultation and to see more policy changes being driven by data science and AI.

Government also has an important role to play in fostering relationships with the private sector in order to make it easier for existing Prop-Tech companies to bring their skills and platforms forward, rather than those companies working in isolation to educate the market.

The good news is that we are starting to see a shift towards Prop-Tech, a global industry now worth $25bn with an expected compounded annual growth rate of 15% until 2030.

Goldman Sachs Backed TopHat To Receive £70m Investment From Aviva and Persimmon Homes.

UK based modular house builder TopHat has raised £70m from investors FTSE-100 listed house builder Persimmon, and Aviva.

The fundraising, backed by new and existing investors, is being led by Persimmon and Aviva Capital Partners.

Existing shareholder Goldman Sachs Asset Management also committed capital to the round of fund-raising with Homes England considering making a commitment. Homes England also funded TopHat’s development at Kitchener Barracks in Chatham in the acceleration of housing delivery in the region.

Modular housing delivery typically offers investors increased returns whilst lowering carbon emissions. This is due to the reduced time spent on site and the ability to better manage time lost due to bad weather and trades teams overrunning as a result, this is why we have started to see advancements in this type of housing delivery across the UK.

The funding will help the firm open Europe’s largest modular housing factory, from which it will manufacture up to 4,000 ultra-low-carbon homes a year.

The investment will provide Persimmon with guaranteed access to energy-efficient volumetric modular units as well as TopHat’s innovative brick façade to use with their Space4 timber frame products.

This will provide further build efficiencies, manage the growing challenge of labour shortages in key trades and expand Persimmon’s product range for their customers.

This collaboration also shows how Aviva is using its financial strength to invest in the sustainable infrastructure and real estate which are central to the UK’s net zero transition within the Construction sector.

Housing Market Update By Ummar Hanif

Headline Facts:

  1. Average UK property prices have increased by 0.2% to £366,247 in the month of April.
  2. The annual rate of increase was a modest 1.2%
  3. Value of first-time buyer homes hits record high
  4. The market has also seen sellers lowering their expectations to reflect economic reality

UKDC has seen that, despite economic and political turbulence, the UK’s property market has performed well in April, which we believe in part was down to the stabilising of mortgage rates and more realistic pricing by agents and vendors.

The average price of property listed by UK estate agents in April increased by 0.2% – or £890 – compared to the previous month, as traditionally more people put their houses up on the market at Spring time. 

The rise is notably less than the 1.2% typically seen at this time of year, and marks a smaller monthly rise than the 0.8% recorded in March. However, it says sellers are pricing realistically to tempt seasonal buyers.

Rises have been recorded in all regions across the UK this month, with the exception of London and the North East which have seen falls of 0.5% and 0.1% respectively. Scotland posted the biggest monthly rise at 3.2%.

The average cost of a UK home currently listed for sale now stands at £366,247, which is 1.7% higher than last year.

While the general rate of growth is slowing, average values of typical first-time-buyer homes (which are defined as two bedrooms or fewer) hit a new record high of £224,963 in April. 

We believe that rocketing rents was a key motivator – for those able to clear the mortgage and deposit hurdles – to get onto the property ladder.

Mortgage costs have also stabilised from their peak of more than 6.5% following last autumn’s Budget announcements. The average cost of a ‘first-time buyer’ 5-year fixed rate mortgage with a 15% deposit now stands at 4.46%. 

However, while costs have continued to edge down, the average rate for this kind of deal stood at 2.64% this time last year which represents a significant increase.

The number of sales being agreed in April suggests a healthier market than many expected. Levels are just 1% under the pre-Covid figures for March 2019, and above those seen in September before they plummeted by 21% following the Budget.

However, at 18% behind last year, agreed sales are consistent with more normal levels of market activity.

Agents have also been reporting that many sellers have transitioned out of the frenzied multi-bid market mindset of recent years and understand the new need to tempt spring buyers with a competitive price which has been reflected in the current market conditions. 

The good news is that buyers and sellers appear to have adapted to and accepted the current economic and property market conditions. 

This means that there are now more attractive fixed rate mortgages available providing buyers with more confidence, and there has been a noticeable increase in sales activity which in turn has seen the markets moving again.

A Snapshot of The UK Property Investment Market With Ummar Hanif.

The strength of Investments within real estate have never been so important. The last 30 years has shown the world that the, UK property sector has a long, credible record of resilience and stability in times of wider economic uncertainty.

Before the pandemic, we had seen a ‘city-centre renaissance’, leading to strong house price and rental growth across major UK towns and cities. This was driven by strong demand for town and city living with a chronic shortage of high-quality rental property in these locations. We forecast an average of 20% growth across major conurbations including Manchester, Leeds and Birmingham over the next five years, this is for both for house price and rental growth.

UK house prices rose by 20.4% over the last three years, compared to just 8% over the previous three years. While growth is starting to return to normal pre pandemic levels, this shows how the UK property market remains resilient despite wider economic turbulence.

The rental market is also seeing significant growth, with key drivers cited as the strong demand for city living, the end of Help to Buy, and rising mortgage rates, meaning a proportion of prospective buyers have delayed their decision to purchase and remain in the rental market. This has driven rents up, further impacting the supply and demand imbalance which underpins the rental growth across all major UK cities.

We are therefore still seeing a significant number of enquires from institutional investors relating to new build to rent projects with city centre locations. This is still one of the fastest growing and most attractive asset classes in the UK for large financial institutes, a trend which we expect to continue.

The Rise of Data Centres

The data centre sector has seen a fair amount of change over the past couple of years, including the move towards hyperscale size which are now the most common data centres worldwide. Since the pandemic we have seen data centres become a significant part of our critical national infrastructure here in the UK with more data stored in the past 12 months than any time ever recorded.

A recent study showed that the global data centre market was worth £166.7bn in 2021 with projected growth to hit £336bn by the end of 2028. The study suggested that this growth was due to an increase in the number of data centres following a period of greater investment by governments and private corporations as well as the move towards cloud based environments for businesses.

The rise of 5G and adoption of artificial intelligence (AI), IoT, machine learning (ML), and big data were also cited as reasons for the expected growth within the sector.

As data centres become increasingly attractive as an investment asset class, our team are able to utilise their knowledge, gained from working with experienced investors, in order to advise on complex data centre investments and acquisitions.

We understand how to navigate this sector and have experience in all aspects of this emerging asset class so can provide tailored advice to suit your data centre needs. Our clients include:

  • Investors
  • Enterprise/hyperscale operators
  • Cloud data centre providers
  • Managed services providers
  • End users/tenants/customers
  • Developers

We draw upon a highly experienced group of professionals who are able to advise clients on a broad range of areas that impact the data centre sector including:

  • Acquisition and investment – (private equity, venture capital and joint venture) and real estate asset
  • Occupation 
  • Development
  • Construction and projects
  • Outsourcing
  • Environmental and planning
  • Data protection and cyber security
  • Information technology
  • Regulatory
  • Intellectual property
  • Energy
  • Telecoms

2022 has seen an increase in demand for office space, as businesses look to rent more UK commercial property.

Respondents to a recent RICS survey have shown a notable increase in UK office space in the first quarter of this year with the net balance improving to +30% from what was a very bleak picture at the end of 2021.

We have also seen changes in the retail sector during the same period as occupier demand moved into a more stable area at (-1% net balance), the first time this reading has been neutral or positive since the beginning in almost 5 years.

The commercial property sector as a whole has seen an increase in occupier demand across all asset classes (retail, office and industrial uses).

We have also see an increase in Investor enquiries for the first part of 2022, with the strongest figure since Q3 2015. Moreover, for the first time since 2017, investment enquiries are now in positive territory across each of the three traditional market sectors separately (office, industrial and retail).

Investor demand for office space rose in 2022

The investor demand for office space rose from a net balance of +5% at the end of 2021 to +23% in Q1 2022, and the net balance of respondents predicting a rise in capital values for the prime office sector is the most positive since Q4 2019 (+37% net balance).

With the jump in occupier demand for new office space, rents are expected to rise with a net balance of +19% expecting a rise, compared to +7% in the last quarter.

On a regional level, rent for office space in central London are anticipated to outpace most other UK regions, while the South East remains the only region in which secondary office space is predicted to see growth.

The office sector is showing strong signs of recovery

The survey feedback shows demand from both occupiers and investors gaining momentum over the quarter, with the office sector in particular now showing signs of recovery.

This has led to an upgrading in expectations for capital value and rental growth across prime offices, while the prolonged downward trend in portions of the retail sector also now appears to be easing.

There are some challenges however given the current headwinds facing the UK economy in the form of sharply rising energy prices, higher interest rates and general cost of living pressures, there is understandably a lot of caution regarding the potential impact this could have on market conditions going forward.

Build-to-Rent (BTR) homes in the UK have increased by almost 20% over the last 12 months.

The number of build-to-Rent (BTR) homes across the UK has increased by 19% in the last 12 months, according to the British Property Federation.

This means that the total number of BTR homes that have now been delivered in the UK stands at 72,668 which is up from 61,000, just over year ago.

The spread across the UK is as you would expect with London seeing 5,802 new homes being delivered and the regional cities taking the remaining 5,866 homes.

The construction and planning pipeline shows us that the existing market growth will be sustained in the short to medium-term, with a total of 46,304 homes under construction at the end of quarter one, which is up 14% year-on-year, while new residential units in the planning pipeline are 11% higher than 12 months ago.

This level of growth demonstrates just how rapidly the UK Build-to-Rent sector has grown and continues to expand. The number of completed homes increasing by around a fifth in a single year which is a huge leap and suggests that the sector is making a strong contribution to UK housing delivery.

From an investment perspective, this shows that there is long-term demand for rental homes in the UK which means that the sector’s prospects remain very positive. Although there are some concerns nationally caused by build cost inflation, the sector’s planning pipeline continues to grow, and we are seeing a shift towards larger-scale development as investors recognise the immense shortage of high-quality homes in many towns and cities.

The Build-to-Rent sector is already making an important contribution to national housing delivery. Expansion into new locations can help address the shortages of rental stock seen up and down the country, while the growth of single-family housing provision, an area of significant under-supply, is the next stage of growth for the sector. The sector has also seen a shift towards family housing in urban fringe locations which has seen the delivery of much needed family accommodation on the out skirts of major conurbations. This is a strategy which has been adopted by Ecotek Homes who have been acquiring sites throughout the UK to deliver much needed low carbon, affordable family housing through their off site modular solutions.

Affordable Homes, Tackling The Crisis

Legal & General have made plans to invest over £2bn of funds into affordable UK homes over the next five years.

Our Team at UKDC have estimated that over 140,000 new affordable homes are required and need to be built every year in order to meet the increasing demand. To demonstrate the scale of this task, over the last 12 months only 45,000 were delivered across the UK, a third of what was required.

Legal & General have risen to the challenge and have announced this week that they will invest additional capital to help create more than 10,000 new homes nationwide through their Retirement Institutional business (LGRI).

The investment is being made through the Legal & General’s Affordable Homes business and will help to tackle the shortage of affordable housing that currently exists in England.

LGRI made a first £100m funding commitment to affordable homes in 2020. Last year a further £270m was committed to investing in 1,400 new affordable homes across the UK, to be delivered by 2024.

LGRI are also set to invest a further £2.5bn into the built to rent sector over the next 5 years whilst they are also committed to a sustainable future by pledging that all new affordable homes they deliver will be net zero carbon by 2030.