London Property Market

Overseas investor interest in UK real estate and construction has tripled

Property News

The proportion of overseas investors who consider real estate and construction to be a key driver of future UK growth has more than tripled since last year, according to EY’s latest UK Attractiveness Survey, which tracks the UK’s appeal as a destination for foreign direct investment (FDI).

Thirty-one per cent of respondents to EY’s survey, conducted in September 2020, said that real estate and construction would drive UK growth in the future, up from 10% in 2019 – the highest increase of any sector.

Real estate and construction is now in the top-three most attractive sectors for overseas investors, behind only digital (seen as driving future UK growth by 50% of respondents) and health and wellbeing (36%).

Russell Gardner, EY UK & Ireland Head of Real Estate, Hospitality & Construction, said: “The Government’s stated infrastructure plans have likely played a role in boosting interest in the real estate and construction sector. But the significant impact of the pandemic on UK high streets and workplaces has also encouraged many investors to re-imagine what real estate will need to offer in the future.”

The pandemic has re-shaped investors’ strategies, with 61% of respondents saying that the changing model in major city centres will become an important theme in future investments.

Underlining the built environment’s importance to FDI more widely, 23% of respondents cited the reliability and coverage of infrastructure as an important factor for deciding whether to invest in a particular country.

Russell Gardner comments: “There will be opportunities to attract investment as the country rethinks the roles and make-up of our town and cities. The long-awaited National Infrastructure Strategy is expected to provide a clear, long-term framework, and will be an essential catalyst to attracting investors who are willing to make significant, long-term commitments.”

Overall, EY’s UK Attractiveness Survey found that the proportion of overseas companies planning to invest in the UK in the next 12 months has fallen to 25% from a ten-year high of 31% in April.

Only 43% of respondents are continuing with the UK investments they planned before the pandemic, down from 72% in April.

According to EY’s analysis, these figures would mean 30-45% fewer FDI projects in the UK in 2020 than the 1,109 projects recorded in 2019 – equivalent to a fall of between 333 and 499 projects.

Over one-third of respondents (35%) said they had scaled back their FDI plans and 17% have paused them. However, just 5% have cancelled plans entirely and 21% said they had increased UK investment in light of COVID-19 (up from 5% in April).

A separate EY survey of 109 investors, carried out at the same time and focused on Europe, found that the UK is seen as the second most attractive European destination for foreign investment in 2021, with 40% of respondents describing it as the ‘most attractive’ country – slightly behind the 43% opting for Germany and ahead of the 39% backing France.

Alison Kay, EY UK&I Managing Partner for Client Service, says: “The UK’s attractiveness as a destination for FDI remains comparatively strong despite COVID-19. Overall, the outlook for the UK looks stronger than that for Europe.

“However, the UK will need to keep pace with the changing drivers of investment. Since the start of the year, COVID-19 has seen investors put an increasing premium on a country having measures in place to prevent a future crisis and its level of success in dealing with the pandemic.”

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