Institutional investors 'committed' to UK residential property – IPF

UK - Institutional investors are convinced of the case to invest in UK residential - but not of gaining exposure to it via real estate investment trusts (REITs), according to the Investment Property Forum (IPF).

A paper published this week as part of the IPF's four-year research programme found that just over 66% of the 42 investors polled had already committed capital to UK residential collectively valued at £7.6bn (€9.7bn).

Residential on average comprised less than 6% of the overall real estate portfolio.

However, exposure to the sub-sector has been either direct or via non-listed funds.

No investors in the sample, which included pension funds and insurers, as well as fund managers, identified listed as a means of exposure.

Income-driven appetite for student accommodation - included as a sub-sector- showed in the survey.

Roughly 50% of existing investors had some exposure to student accommodation - compared with 42% with exposure to market or affordable rented housing.

Moreover, only one investor identified student housing as a proxy for investment in residential.

The most significant influx of capital into residential over the next couple of years is likely come from fund managers.

Of the 68% of existing residential investors that said they planned to invest as much as £2.7bn collectively over the next 1-3 years, fund managers anticipated between £2.1bn and £2.2bn.

Four REITs polled said they would commit £300m.

Existing investors identified drivers including returns (23), stability of income (19), low correlation to other asset classes (18) and capital values stability (17).

Of the 14 non-investors, 12 said gaining exposure to UK residential was "just too difficult", primarily because of management issues.

Other deterrents included insufficient income yield (9), lack of liquidity (9) and pricing (6).

Yet 57% of non-investors said they might enter the residential market in the medium term, with aggregate capital of between £350m and £840m.

Robins Goodchild, international director at LaSalle Investment Management and chair of the IPF's residential special interest group, said: "A number of people, including me, believe UK institutional investors should have a much greater exposure to residential property than is generally the case."