Sourcing Investments in the Sectors

More institutional investors are being drawn to the strong, uncorrelated returns available from UK residential real estate. Here we explain our approach to accessing opportunities for exit in this fragmented market

Over the past few years,  Build to Rent (BTR) Residential, Hotel and PBSA has seen increasing institutional investment as each sector matures as safe investment opportunities for investors . Amid growing demand, finding assets of the right quality and size for institutional investment is not easy: experience, relationships and wide geographical coverage are important in capturing opportunities. While these attributes are crucial for all real estate investment strategies, the market presents unique challenges. It is a comparatively new investment sector compared to office, retail and industrial property. Currently, UK institutional investors allocate only 4% of their property investments to residential property, compared to 46% in the Netherlands, 22% in the US and 12% in Germany, according to the IPF Research Programme.

Finding Stock

One of the biggest challenges for investors is accessing opportunities of sufficient scale in a fragmented market dominated by private landlords. Many BTR / PBSA buildings across the UK are still in the planning or construction phases, and fund managers may not always be privy to this supply of stock – particularly if the assets are selectively marketed.

There are also different paths to financing: some investors opt for forward funding, whereby they will pay upfront for assets still under development, while others prefer to acquire a newly completed or redeveloped building. An on-the-ground presence is essential to consistently identify opportunities in the UK regions because many of these areas have not appeared on the investment radar, partially because residential property as an asset class is not as thoroughly researched as commercial real estate, and few investors have had the resources to analyse the market.

The advisor focuses on various housing sectors across the country, concentrating on the development and execution of fund strategy, portfolio selection, risk management and the delivery of ‘oven ready’ sites. One of the key responsibilities of the advisor is to source, assess and recommend assets throughout the UK for acquisition then exit

Housing Market Fundamentals

It is easy to understand why the UK residential real estate market is attracting more attention from institutional investors. From 2000- 2013, it returned 10.5% per annum compared to the nearly 7% per annum from commercial real estate. The sector also demonstrated strong capital appreciation by generating growth of 6.7%, which is substantially higher than the 0.9% delivered by commercial real estate in the same timeframe.

Allocation Trends

To date, as with commercial real estate, most BTR / PBSA investments have been made in Central London. However, we believe there are compelling opportunities beyond the capital and, for this reason, the majority of the portfolio will be invested in attractive outer zones of London close to growing transport links such as Crossrail and Regional Cities with strong underlying fundamentals: improving economic conditions, a rising population, limited house building and challenging costs of housing.

Our experience tells us that there is no shortage of opportunities, and this view is corroborated by CBRE, which recently identified 25 urban locations in the UK exhibiting strong drivers for increasing rental value but may not have yet experienced rental price increases similar to those in London.

To consistently source compelling opportunities in this fragmented market, an on-the-ground presence and extensive analysis across rental markets and key stakeholder relationships are required.

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