IPF RESEARCH SHOWS STRONG INSTITUTIONAL INVESTMENT DEMAND FOR UK RESIDENTIAL PROPERTY
29 Jan 2018
The IPF’s 6th annual survey, based on responses from more than 50 institutions and large-scale investors, gives an indication of the appetite for residential property as well as continuing barriers to potential investors.
Respondents to the 2017 survey own or manage investments worth in excess of £3.5tn, of which UK real estate comprises c.£240bn (c.7% of all assets). In summary, the research found:
Allocations to residential property within real estate portfolios continue to increase. UK residential investments accounted on average for 8.6 % of all UK real estate assets, the highest percentage since the survey began. The average holding of respondents with exposure to the sector is £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.
- 10 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 (market) rent (£3.2bn).
- Three-quarters of investors intend to work with the UK public sector in the next three years to develop housing. Most are looking to create partnerships with the public body supplying the land and the investor building the stock.
Stafford Lancaster, Investment Director, Delancey Real Estates Asset Management Ltd and Chair of IPF Residential Investment Group, commented “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.”
The research findings were presented to IPF members at a seminar on 10 January 2018 and both the full report and At a Glance summary are available to download from the Resource Library on the IPF website.