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IPF: Two-thirds of UK institutional investors to increase residential exposure in the coming year

The overall value of the UK residential exposure, of the 37 residential investors providing data, was £27.8 billion, a substantial uplift compared to last year (£16.6 billion). UK residential investment represents 13.5% of those respondents’ total UK real estate assets, averaging over £750 million per investor (up from 8.6% and £520m in 2018). Return profile remains the principal reason for investing, followed by stability of income, with development potential, defensive qualities, stability of capital values and inflation-matching ability all ranking some way below.

Additional findings include:

  • PRS (private rented sector) continues to present the most common form of investment, representing around half of the total. Development, either for retention (as investment stock) or for market sales, accounts for a further third, with c.10% held in social housing/sub-market rental assets.
  • Almost 70% of assets are located in central London, (41% in Zones 1-3 and 27% in Zones 4-6). The North West accounts for a further 9%.
  • Of the 10 contributors who do not invest in UK residential, current primary reasons are low income yields, unattractive pricing and political risk, with the latter more common than in previous years.
  • A net £6.8 billion (£8.3 billion in 2018) has been allocated for investment in 2020, the majority of which is likely to be channelled through build-to-rent/development of investment stock (£3.6 billion) and the purchase of existing properties for private (market) rental (£2 billion). This reflects some of the appetite for residential already being satisfied but may also indicate a more cautious approach to the sector, given uncertainty in the UK investment market.
  • Although only a quarter of residential investors have worked with the UK public sector in the last three years, two-thirds intend to collaborate in future, with the main objective being to access sites to develop and retain for rental purposes.

Rachel Portlock, IPF report author, wrote:

“While the shortage of housing stock remains a major issue, current investors voiced most concerned about the lack of consistency and transparency around industry regulation and, in particular, rent control. While political parties have intimated that changing policies would help resolve issues caused by dubious landlord practices, much needed institutional money, particularly from overseas, may be scared away. There is concern that the sector is still too immature to be overly or crudely regulated. On a positive note, advancements in technology and sustainability will ensure that the next five years are exciting times for the development of new product and operational systems that will enhance the UK residential market, for both investors and tenants.”

The full IPF report is available to download here.

james.wallace@realassetmedia.com