Invesco Real Estate has made its first UK private-rented sector (PRS) investment on behalf of a UK local authority pension fund.
Invesco will buy 118 PRS units for £32.5m in Hayes, west London, from Willmott Dixon’s be:here division on behalf of its client. The client will purchase the site’s freehold and fund the scheme’s development, due for completion in 2016.
John German, Invesco’s director of residential investments, told IP Real Estate that the decision to invest in the scheme was aided by the company’s knowledge of residential property in the US, where it has $6bn of multi-family real estate under management.
German, who joined Invesco last year, said: “Up until recently, European residential was only part of our strategy and was not part of our core European business.”
Invesco, German said, began monitoring the UK residential sector in 2012 and made its first investments in Europe last year, spending €130m on two projects in Germany.
“Rents typically track average earnings and, while it’s not directly RPI, you’re getting an inflation-linked rental stream,” he said, pointing to the fact that London has a higher proportion of rent-paying residents than the rest of the UK. The London region, he added, was a natural first stop for both Invesco and its client when investing in UK PRS.
“PRS is a new sector for a lot of people and the most obvious choice is greater London,” he said. “It could be close to the M25 and not just within the M25.”
Other UK locations, German added, will be considered, with a focus on large conurbations.
“It’s about the overall benefits of regional exposure where yields may be higher but rental income lower,” German added.
Having a UK local authority onboard, was, he concluded, “pretty pioneering”.
“There are a number of similar entities seriously looking at UK PRS as a realistic investment opportunity,” he said. “Returns compare favourably with core commercial real estate.”
A sensible hold period for the west London scheme, German said, would be seven to 10 years, but did not rule out keeping the property for longer.