UK - The integration of residential investments into IPD's all-property UK index has been hailed as the single most important development in attracting institutional investors to the housing sector.
IPD launched its first ever UK residential index in London on Wednesday and revealed that the annual all-property UK index would now include residential specialist funds.
The launch was followed by the British Property Federation's (BPF) annual residential conference, where Robert Houston, founding partner of St Brides' Managers, told delegates it was "the most significant development to happen for institutional investment in residential".
The former ING REIM UK chief executive said the move would effectively force all UK pension funds and their advisers to justify any underweight exposure to residential with now forming part of the IPD benchmark.
Houston said this would pose difficult questions if IPD showed residential to be outperforming the commercial real estate market in the UK.
The latest figures from IPD did indeed show the residential sector to have outperformed all commercial sectors in the UK last year: delivering 11.3% in 2011 versus 10% for the highest performing commercial sector, offices.
However, the new index also revealed the extent to which residential total returns have been based on capital growth, with the income component only 2.9% for 2011.
Mark Weedon, head of UK residential services at IPD, said: "The income yield delivered by residential property remained low, an inevitable by-product of the strong rise in values, which may be off-putting to investors, who are constantly looking for secure, long-term income streams."
But Weedon also showed IPD delegates how residential investments delivered both higher total returns and lower volatility compared to both commercial real estate and equities over the past 10 years.
Andrew Pratt, former Grainger managing director and residential investment consultant at CBRE, spoke at both IPD and BPF events about the interest among foreign institutional investors for the UK residential sector.
Pratt cited Swedish charitable foundation Akelius, which is investing in UK housing with the help of CBRE, but said they were not the only foreign investors looking at the sector. Bruce Ritchie, CEO of Residential Land, also spoke about his firm's recent mandate to invest £100m in London residential assets on behalf of Canadian pension fund Casse de dépôt et placement du Québec.
Pratt said he was not seeing interest from domestic institutions but hoped IPD's new benchmark would persuade UK pension funds to enter the market and emulate their involvement in the UK student accommodation market.
Nick Jopling, executive property director at Grainger, told IPD delegates that UK investors had not "missed the bandwagon" and that the opportunity to invest in the residential market would persist for some time.
