Institutions and large-scale investors increased allocations to residential property to 8.6% in 2017, according to the Investment Property Forum’s (IPF) latest survey.
The average holding of respondents with exposure to the sector stood at £432m.
Investment into the private rental sector (PRS) continues to grow in popularity and now accounts for half of total residential investment. Development for either investment stock or for market sales accounts for just under a quarter.
The returns profile remains the principal reason for investing in residential, with stability of income the second. Other important criteria are low correlation with other asset classes and the inflation-matching characteristics of UK residential.
The survey is based on responses from more than 50 institutions and large-scale investors, who own or manage investments of more than £3.5tn, of which UK real estate comprises around £240bn.
Ten of the contributors to the 2017 survey do not invest in UK residential, primarily because they see the sector’s pricing as unattractive, income yields as too low for their requirements or are concerned about achieving scale of investment.
Over 70% of survey participants use an absolute return target, with only two investors using a residential benchmark and, only then, for comparative purposes.
80% of residential investors in the survey intend to increase their exposure to UK residential over the next 12 months, compared to 60% in the 2016 survey, with three non-residential investors considering a move into the sector.
A total net figure of just over £8bn is earmarked for investment in 2018, the majority of which is expected to be channelled into development of investment stock (£4.4bn) and the purchase of existing (and newly completed) residential for private rent (£3.2bn).
Stafford Lancaster, investment director, Delancey Real Estates Asset Management and chair of the IPF Residential Investment Group, said: “This year’s survey reaffirms what many of us involved in this emerging sector know – that a significant amount of capital is looking to access it, attracted by long-run returns, diversification and significant undersupply particularly at the more affordable price points. There remain barriers around viability, achieving scale and management, but the direction of travel is clear and this is good news for the UK’s ongoing housing crisis. I would encourage all investors in this sector to contribute to the survey going forward as it provides valuable data that is currently lacking.”
Jean-Marc Vandevivere, PLATFORM_’s chief executive and former head of residential at British Land, added that the survey “confirms a broader trend by UK institutions towards socially beneficial, defensive investments.”
“With traditional investments underperforming and interest rates at the lowest they have ever been, it’s unsurprising that institutional and other large-scale investors are turning to UK residential property, which has outperformed every other asset class since the end of World War Two,” he added.
“The good news for UK renters is an increasing amount of the money deployed is going towards build-to-rent – clusters of purpose-built, professionally managed apartments designed specifically for rent, typically with on-site amenity and shared spaces. For the investors, the counter-cyclical nature of build-to-rent – people are more likely to rent during a downturn – is increasingly attractive and today’s news confirms a broader trend by UK institutions towards socially beneficial, defensive investments.”