Institutional investors earmark more than £8bn for UK housing market

Most institutional investors active in the UK’s housing market plan to increase their exposure, with more than £8bn (€9bn) earmarked for the sector over the next 12 months, according to the Investment Property Forum (IPF).

The IPF’s latest survey on residential market shows that 80% of institutional residential investors plan to increase investments this year, up from 60% 12 months ago. Three non-residential investors are considering entering the sector in the next 12 months, it found.

The majority of capital will be chanelled through development land (£4.4bn) and the purchase of existing – and newly completed – assets for private rent (£3.2bn), it found.

IPE Real Assets has reported on institutional capital moving into the private-rented sector (PRS) in the UK in recent years, as domestic and foreign pension funds flock to the burgeoning market. 

IPF’s 2017 UK Residential Property report, surveyed 56 investors, owning or managing over £3.5trn, of which UK real estate makes up around £240bn.

Out of the total investors surveyed, 46 of them had exposure to the UK residential sector. The 42 investors who provided data, amounted to £18.1bn, or 8.6 % of all UK real estate assets, the highest amount in the survey’s six year history.

“Investment into the private rental sector now accounts for half of the total, whilst development, for either investment stock or market sales, accounts for just under a quarter of the total investment in residential assets,” the report said.

The research indicated that institutional investment keeps growing as a result of the sector’s return profile and stable earnings.

“Other important criteria are residential’s low correlation with other asset classes and its inflation-matching ability,” the report stated.

Earlier this year, the new UK property investment platform of Nordic manager Brunswick Real Estate, made its first investment in the UK PRS.

Other notable deals so far this year include Hearthstone Investment Management’s UK housing fund acquiring a portfolio of 171 homes, Invesco Real Estate and Meyer Homes partnering on a 255 build-to-rent project in West London, and Barings Real Estate Advisers providing financial support to a build-to-rent residential project in the Northwest of England.

Stafford Lancaster, an investment director at Delancey Real Estate 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.”