EUROPE - Swedish charitable foundation Akelius has entered the UK residential market, highlighting growing interest among domestic and foreign institutional investors in the underdeveloped sector.
Akelius, a not-for-profit organisation that owns SEK30bn (€3.29bn) in residential assets in Sweden and Germany, is working with CBRE to expand into the UK.
The first acquisition has already been made: a block of 16 apartments in South London.
The seller, Terrace Hill, announced today it intended to divest all of its residential holdings as it sought to focus on the retail real estate sector in the UK.
Philip Leech, chief executive at Terrace Hill, said: "Despite the strong prospects for residential property over the medium term, we can deliver far greater returns for our shareholders from our food-store development business."
According to Chris Lacey, executive director at CBRE, there are likely to be other similar opportunities for long-term investors, such as Akelius, to acquire existing assets from shorter-term investors like property companies.
"In fact, there is quite a lot of stock held in probably the wrong hands," he said.
Akelius is aiming to replicate its activity in Germany by acquiring approximately 10,000 apartments over the next 3-5 years, with a focus in London and surrounding locations.
Lacey said big institutional players like Akelius had recognised the opportunity in the UK.
"We've got a really fragmented private rented sector," he said "They can see there is a gap in the market and there is something to be done."
The Swedish organisation is focusing on existing assets and did not say whether it would consider investing in build-to-let developments.
Grainger and Bouyges Development recently launched a build-to-let development fund for institutional investors and is seeking third-party equity to add to an initial pool of co-investment capital.
CBRE has been working with Aviva Investors since 2009 to launch an institutional build-to-let fund, but Lacey said the lack of traction had more to do with general investor caution than the residential investment story itself.
"The difficulties in raising a product that is a new to the UK is really hard," he said.
"There's been next-to-no new funds created in any sector, let alone residential.
"[No matter how] great the argument is financially and how great the desire from pension funds is to have a scalable investment in this market, you still have the problem of doing something new and raising money in a market that is hugely difficult."