Macfarlanes report indicates significant OPRE growth

According to a new Operational Real Estate report from Macfarlanes, the UK Operational Real Estate investment market could exceed £750bn.

Macfarlane's Nicole Mitchell and Robert Porter | BTR News
Macfarlane's Nicole Mitchell and Robert Porter.

According to a new Operational Real Estate (OPRE) report from law firm Macfarlanes, the potential size of the UK Operational Real Estate investment market could exceed £750bn if current investment trends continue.

The report suggests that the shift towards operational assets – where income and capital values are linked to the performance of the underlying operator – has been one of the most significant structural changes to the property market in recent decades. 

OPRE is closely associated with new sectors such as Build to Rent, life sciences and cold storage. 

Build to Rent offers appealing investment potential, which many investors have sought to access by rebalancing their real estate allocations away from traditional real sectors.  

Macfarlanes highlight that investors new to the OPRE sectors will be required to evaluate assets with an unfamiliar risk profile, including forming a view on the reputational, employee related, IP and privacy and change of law risks, alongside the requirements of any sector specific regulation. 

“OPRE is one of the most important structural changes affecting the property market currently. Many of our clients’ assets are increasingly and inextricably linked to operational platforms and the end users of the real estate that they serve. It’s a huge opportunity for asset managers and investors to change how they hold assets – moving beyond passive ownership – to create more resilient returns and investment models more in sync with the performance of the people that occupy and underpin assets. At Macfarlanes, we recognise this structural shift requires us to adapt as advisers. Over the past six months we have interviewed a variety of market leading stakeholders, investment managers, operators, advisers and lenders and collated their perspectives and insights. The result is a deep dive into today’s operational real estate market, and how such investments may be accessed and an overview of some of the key structuring and governance issues being grappled with.” 

Nicole Mitchell, Head of Real Estate Strategy and Policy, Macfarlanes

Effectively appraising these risks may require the introduction of new skills and processes into their organisation. 

Analysis of market sizes carried out by Montfort Communications for the report estimates a current value of around £240bn.

Should current growth trends continue, and the UK sees similar levels of saturation as other countries, the UK market size could comfortably exceed £750bn.  

A graphic showing the potential size of UK operational markets in selected alternative markets.

“Operational real estate models have grown alongside investment into the alternative real estate sectors, which has been led by private equity investors willing to take on management risk to secure returns. A key part of those strategies has been de-risking the running of those assets to make them more suitable for institutional markets. This report is a comprehensive exploration of the lessons learnt and the models emerging.”

Robert Porter, Senior Consultant, Macfarlanes

In comparison, the combined size of the office, retail and industrial markets was £817bn in 2020, according to the IPF.  

The report also explores how an operational approach to real estate investment can be applied across the traditional real estate markets.

Currently, all real estate sectors are becoming more operational, with more contact between asset owners and underlying operators and the end users of the real estate itself.