In the Brexit aftermath, the real estate sector of the UK’s private equity market is treading a softer path when it comes to deal flow, according to Preqin.
According to the report, although fund managers in Europe raised $210 billion in the industry, $108 billion—nearly half—has come from managers based in the UK, as of July 2017.
UK private equity real estate transactions have dropped 41% since the June 2016 referendum, while the aggregate value of these transactions are 43% lower than the first half of 2016
Completed transactions in UK-based office and retail areas were also down 48% and 39%, respectively in the second half of 2017.The aggregate value of the deals was 30% and 51% lower in the second half as well.
However, both UK and European deal flow are showing slight improvements in recent months. UK-based deal flow has risen from 186 completed deals in the second half of 2016 to 201 this year—bringing the aggregate deal value from $10.4 billion to $17.5 billion. European deal flow more than doubled its aggregate deal value from H1 2016’s $18.8 billion to $40.6 billion in H1 2017.
There has also been an increase in the number of UK-focused funds raising capital, from H1 2016’s 26 to this year’s 41—21 of which began fundraising post-referendum.
“In the immediate wake of the UK-EU referendum, the UK saw private equity real estate deal activity decline sharply. Fund managers were uncertain of how the outcome would affect the real estate landscape in the UK, and many chose to delay dealmaking activity given the uncertain situation. As the effects of the referendum have become clearer, deal activity in UK real estate has rebounded, leading to an uptick in H1 2017,” Preqin’s Oliver Senchal, head of real estate products, said in a statement. “Looking ahead, we may see activity continue to rebound as fund managers seek to deploy the record amounts of dry powder available to them, but the long-term future of the asset class still remains uncertain while negotiations are ongoing.”