NETHERLANDS – APG could double its global allocation to residential real estate, diverting capital from low-yielding retail and some listed office.
Martijn Vos, senior portfolio manager at the €325bn pension fund manager, said increasing its residential allocation to up to 30% of the real estate portfolio was "a possibility, rather than a target", and with no specific timeframe.
But just weeks after APG set up a €414m vehicle with UK residential specialist Grainger to acquire the property developer's G:Res portfolio, he said around £500m (€580.5m) of the increase could target the UK market.
"It could be just what we've already invested, but it could also be more," he said.
He said he had been tempted to call his presentation 'The glorious evolution' – a reference to the 1688 Glorious Revolution that put a Dutch monarch on the English throne.
"I'm not bold enough to suggest we're taking over UK residential, but I'm glad we stepped into the boat," he said.
The pension fund manager will target expiring portfolios, though it has not ruled out non-secondary acquisitions.
"It's difficult to get the scale," Vos told an IPD conference.
"With GRIP [the Grainger vehicle], it was an opportunity to buy a large seed portfolio with unbroken blocks in midmarket residential.
"If you have the freehold, it always works in your favour, and owner/occupiers could provide a nice exit. Prime is well noticed, but there are risk factors there."
APG first identified opportunities in UK residential four years ago as prices collapsed.
However, the paucity of pure play residential players – Grainger is the UK's listed residential specialist – has been a barrier to investment.
Vos forecast that the UK residential market would develop along the lines of student accommodation, "where a student in Nigeria can book a room for rent in the UK", but that it would require more standardised stock.
In the meantime, APG is looking for additional institutional investors to participate in the Grainger deal "to make us net less noticeable".
Vos said: "The first call I ever took as a pension fund manager was from a tenant wanting to know when his plumbing would be fixed.
"Reputational risk is very much an issue for us, which is why the decision to invest in residential took a lot of internal debate. It can lead to circumstances we would like to avoid."
IPD data published earlier this week show London residential outperformed the rest of the UK real estate market both in the short term and over the 12-year life of the IPD residential index.
Inner London (10.7%) outperformed prime central London (10.1%) and outer London (9%).
Over the 12-year life of the residential index, inner London returned 10.1% annually.