Institutional investors are increasingly enthusiastic about the UK’s residential real estate sector, according to a survey by Internos Global Investors.
Its survey of 63 UK and European institutional and real estate investors found “robust” appetite for residential property investment.
Internos said 62% of those polled were planning to invest over the next 12 months, and 69% over the next three years.
Andrew Taylor, head of residential investment, said the results showed the residential investment sector had “come of age as an institutional-grade asset class in the UK”.
He added: “This trend is likely to continue against a backdrop of global market volatility and persistently low bond yields as investors look to diversify their investments into alternative asset classes as they search for long-term returns.”
More than 50% of investors surveyed said they would increase allocations to the sector by divesting holdings in more traditional real estate sectors, largely to the detriment of the UK retail sector and office sector in Continental Europe.
The survey found a preference for the private rented sector (PRS), followed by student housing, hotels, care homes, social housing and shared ownership.
A lack of available stock and unappealing returns were ahead of other factors cited as important by respondents, including the quality of joint venture partners, political risk and planning restrictions.
Most respondents said they were looking for core IRRs of 5-7.5%.
Development risk was not seen as a barrier to entry, which Internos said suggested a willingness to move further up the risk curve.
Just under half of speculative investors are looking to invest for the long term.
Investors’ attitudes to debt varied between the UK and Europe.
In Europe, residential investors appear to have a voracious appetite for debt, with four times the number of investors in Europe using gearing.