Pension funds, sovereign wealth funds and other institutional investors from 11 countries sought ways to unlock opportunities in the UK residential market at a summit in London on Wednesday.
At the first MIPIM UK event in London, 26 investors discussed whether UK housing was ready to become an institutional asset class.
The UK commercial property market was also discussed, including a debate around the relative merits of investing in London versus regional markets.
Here are the main findings:
• There was clear interest from institutional investors in UK residential, although this was more marked among international investors that had experience of investing in their domestic housing markets. For UK institutions, it is very much a new asset class.
• The main challenge in the UK, which sets it apart from other residential markets, is the difficulty in achieving scale. This is due to a fragmented market that is owner-occupier dominated.
• The only way to resolve the issue of scale is to build new properties. But in the short-term this does not provide the stable income returns that investors are seeking. However, truly long-term investors that believe in the asset class will be able to look beyond the initial development phase.
• A growing number of investors are taking on development risk and there are a number of viable operating platforms in the market, bringing expertise in multi-family in the US and Germany and the student housing market. This should enable UK residential to become a more institutional asset class.
London and the Regions
• Large international investors are moving away from allocating to national markets in favour of targeting global cities. This approach naturally favours London, which is a global gateway, versus other UK metropolises. The size of the London market also lends itself to larger investors that are looking to build sizeable exposures through big-ticket investments.
• Domestic investors are more active in the regions, but foreign investors have increased their activity. Manchester, Birmingham, Cambridge, Bristol and Edinburgh were among a number of cities of interest.
• Logistics is the most attractive sector when investors look outside London. Investors are interested in capitalising on the growth in online shopping and the infrastructure required to support the sector.
• A British exit from the EU is seen as the biggest risk for the London market. The move would be a ‘game changer’, likely to damage the UK economy and, by extension, the rationale for investing in London real estate.