Resurgence seen for Shariah investments in UK office sector

The recent office space glut, resulting from a widespread post-pandemic hybrid work practice, is seen to be over in the UK’s finance center and capital city London, real estate consultancy Colliers EMEA Capital Markets Director Matthew Ardron shared with IFN Investor.

“While the office sector transactionally has struggled over the last three years, we are now seeing a huge interest in what traditionally has been one of the largest asset classes for Shariah compliant investors and we have already seen some really big transactions.

“Maybe not from a yield perspective, but from a sort of a foot-fall perspective, there's definitely a push to get into the office. We anticipate there to be much more transactions into offices from Shariah-based investors over the next two to three years.”

Matthew said the flow of investments into the UK office space is a forerunner for uptakes in major European commercial hubs like Paris, Munich, Berlin and beyond like in Madrid and more. While GCC interest remains strong, Matthew said this year also saw a significant fund flow from the US.

A big reason why London tends to be the first port of call with its recognized regulatory foundation is due to the robust and regularly-updated valuations system in place. “Investors like knowing how their assets are performing as their values are realized much quicker here than in other European places.”

There has also been a change in investment trends with collaborations becoming the preferred mode over outright purchases, while the office market struggled in the past few years. “You can't just hope for a bit of yield compression. They have to drive value and need to execute some capex program.”

These often entail ‘brown-to-green' refurbishments to future-proof older office buildings and making them environmentally friendly – being a far cheaper option than replacing with new constructions. Such strategies also allow for turnaround sales within a three- to five-year horizon to lock in returns.

In terms of pricing, Matthew said both family offices and institutions aiming to secure Shariah office assets are quick to snap up any offers priced below GBP100 million (US$133.13 million) – with interest remaining strong up to the GBP300 million (US$399.39 million) mark.

Expecting interest from Shariah investors to remain strong in the long term, Matthew attributed it to the strong ESG approach within the UK and Europe.  "We have our own compliance standard, even if it is not religion-led. It is still a stringent process, that's why you see a lot of strong relationships between European managers and MENA investors.”