The UK’s private-rented sector (PRS) is increasingly popular with institutional investors, according to a new survey by The Mill Group.
The group’s third annual survey of institutions found that 85% of respondents now invest in PRS, compared with 77% last year.
PRS is twice as popular as student accommodation, and seven times more popular than social housing. The sectors are worth a combined £840bn. With institutional investors accounting for less than £20bn, the three sectors are still a source of huge untapped potential.
The Mill Group surveyed 60 investors, including corporate pension funds, fund managers, landed estates, private equity houses, investment banks and sovereign wealth funds.
Andrew Smith, executive director at Mill Group since April this year, said: “This research clearly shows investors are more ready than ever before to invest in much-needed rented housing in the UK.
”They are committing resources to the sector, but progress is being held back by a lack of internal expertise and the limited supply of suitable stock.”
Joint ventures, Smith added, remain a preferred route into the sector, with investors looking for “comfort in numbers”.
Market fragmentation and supply shortages are preventing larger-scale investment.
The group said that the division of residential into sub-sectors means that despite significant growth in institutional investment in PRS and student housing, both sectors are regarded as “niche” markets. Other countries, the report said, classify residential property as one asset class.
The research also revealed that 60% of respondents have invested internationally, with the US, Germany, and east and southeast Asia the most popular areas of investment.
Investors, the research found, have shifted their focus towards markets seen to offer recovery opportunities following the global financial crisis.
London still remains the preferred investment for more than half (57%) of respondents. However, the Mill Group said the UK capital could lose out to other major UK cities, with rental yields less attractive than in Birmingham, Leeds and Manchester.
Overpricing of assets was seen by 37% of the survey’s respondents as a major risk to investment.