Why high net worth individuals continue to be attracted to the UK Real Estate?

Despite some challenging financial circumstances in the UK, which were further exacerbated by changes announced in the government’s autumn budget, the country’s real estate sector continues to attract investment from high-net-worth individuals (HNWIs) across the globe.

Investors from geographies as diverse as the Middle East and France remain active in seeking opportunities, including for commercial real estate classes such as office buildings and retail warehousing, with Allsop having advised several clients in this space on recent significant deals.

As Teddy Roosevelt once said, “every person who invests in well-selected real estate in a growing section of a prosperous community adopts the surest and safest method of becoming independent, for real estate is the basis of wealth.”

Real estate has long been a cornerstone of wealth management, offering an individual or business stability, diversification opportunities, and growth.

Stability amid uncertainty

Real estate is widely regarded as a “safe haven” investment. Unlike stocks, which are very sensitive to changes in market sentiment, property is a slower moving asset class and values tend to be relatively more stable and much better suited to investors with active asset management strategies and better still for investors with long-term horizons.

Inflationary pressures, as witnessed in the aftermath of the global pandemic and the current war in Ukraine, have not dampened real estate’s appeal. Commercial rents often rise with inflation, and even with interest rate increases affecting other asset classes, demand for well-located assets in the UK remains steady. The contractual income component of the return is highly prized by HNWIs, who prioritise wealth preservation with the potential upside of rental and therefore capital growth.

Diversification and risk mitigation

For investors managing large, diversified portfolios, real estate serves as an essential component that behaves differently from bonds where there is no prospect of income growth and where capital growth can only come from an investor paying more for the same income stream which might occur as a result of interest rates falling though there are no prospects for organic growth.

HNWIs often allocate their wealth across various geographies and property sectors – such as residential, retail, industrial, and offices – reducing specific risk and exposure to any single sector. The UK’s property market, with its established legal framework and robust property rights are essential in an increasingly uncertain volatile world where property rights and the rule of law aren’t as robust.

Leverage and capital growth

Borrowing also allows HNWIs to expand their portfolios beyond their equity which in turn allows them to diversify across sectors, amplify returns and wealth accumulation. In a rising market, property values can rise faster than the cost of borrowing, leading to significant capital gains and losses during a falling market. However, in recent times post the financial crisis, yields were supported by lower interest rates which tend to reduce the cost of finance and mitigate some of the upward pressure on yields. 

Estate planning and wealth transfer

For HNWIs, real estate serves as a vehicle for intergenerational wealth transfer. Real assets can be passed down in a tax efficient manner, which helps to preserve wealth across generations. Tangible, immovable and finite, real estate is an ideal asset for long-term estate planning.

Both buyers and sellers of UK real estate should, therefore, more closely consider how to ensure they are reaching not only traditional property investors in their marketing, but also those who increasingly will turn to property to grow, diversify and protect their capital. In this regard, Allsop’s network and mailing list is unrivalled and renowned for opening doors that other agencies can’t. Of the £525m the Allsop National Investment Team transacted in 2024, approximately 35% of transactions involved HNWIs – predominantly UK, Middle Eastern, French and Swiss investors. We are of the opinion that in the long term, the share of transactions involving HNWIs will grow due to projected rates of return on capital exceeding economic growth.