EUROPE - UK property firm Grainger and French construction firm Bouygues are testing the market for an eight-year fund aimed at exploiting tenant demand for rented housing in the UK.

The proposed build-to-let fund will invest in 1,000 as yet hypothetical residential units in the commuter belt around London and, according to the joint venture partners, give institutional investors access to the "relatively inaccessible" private rented sector.

Construction will begin on the first assets in the first quarter of next year, with completion of the first units expected in Q4 2013.

The partners have already gained planning permission for the sites.

Grainger spokesman Kurt Müller said the fund would target areas with proximity to the capital, "but not so close we're competing with pride Mayfair and Belgravia assets - we can't have upfront costs so high they kill the yield".

Much of the detail of the fund has yet to be worked out - including its target size.

The partners are currently trying to raise £150m (€171m) from UK and European pension schemes and insurers. Although both firms will co-invest equally in the fund, Müller declined to say how much.

The proposed fund will exploit both the UK government's stated plans to increase the number of new-build residential units and the 'public land' initiative encouraging building on land owned but not used by local authorities.

"The idea of build-to-let has been talked about for a decade, but there has been a stigma attached to rental that's ingrained in the British psyche," said Müller.

"That's changing as younger professionals demand flexibility in an uncertain job market.

We're swimming against a strong tide, but the tide is turning."

The AUM £2.4bn property firm already manages the UK's first residential fund.

"It's difficult to find a proposition that includes both construction and management," said Müller.

"We have a track record of raising institutional finance, and the fact the fund will be denominated in sterling is an attraction for investors cautious about the euro."