Appetite for residential investment among institutional investors has never been higher, and large numbers are looking to trade out of other sectors to fund deals, a survey by Internos has found.
The research, which was drawn from interviews with 60 leading institutional investors, found that the majority of respondents were looking to increase their exposure to the residential sector. Some 62% of respondents said they wanted to do so in the next year and 69% said they planned to over the next one to
When asked whether they would do so by selling out of other sectors, exactly half said yes, with investors electing to take money out of retail first, with offices a close second. They also said they were willing to invest big sums, with almost 20% considering more than £100m to be a reasonable first step.
The survey, which was shared exclusively with Property Week, employs a wide definition of the sector as anywhere someone spends the night, so includes hotels and care homes, as well as student housing and the private rented sector (PRS).
PRS is the most popular asset class in which to invest, followed by student housing and hotels, with care homes, social housing and shared ownership bringing up the rear. “PRS is out in front by a country mile - it’s much more popular than the other sub-sectors,” said Andrew Taylor, head of UK residential investment at Internos.
“Shared ownership is at the bottom of the pile, but that may be because people don’t really grasp it as an investment opportunity,” he added.
Investors largely agreed that there would be a market for a new shared ownership product that would allow people to choose the property they wanted to purchase and obtain a combined rental product and mortgage from a bank, he said.
In terms of where investors have actually put their money, hotels top the list, followed by mixed use and PRS. While still far less popular, land banks have climbed up the ranking as investors look for opportunities to make better returns.
“Land has risen from obscurity because people now appear more willing to take risks,” said Taylor.
Investors also appeared sanguine about development risk, which barely registered as a barrier to investment. By far the biggest barrier was still a lack of available stock, which was particularly relevant to the PRS sector. To solve the problem, the creation of a dedicated PRS planning class topped investors’ wish lists for policy reform. The proposal, which was put forward in Sir Adrian Montague’s 2012 report on the sector, would mean land would be earmarked by planning authorities specifically for rent.
Other favoured policies included legislation to force local authorities to release more land and an extension of permitted development rights for office-to-residential conversions.
Asked what would set back investment in the sector, greater devolved powers to Scotland came out near the top. Investing north of the border had limited appeal in any case, with 60% of respondents saying they would not put money into residential investments in Scotland.
Investors remained relatively London centric, with two thirds of them saying they required at least half of their investments to be in Greater London.
“The pure economics of supply and demand have underpinned the investment decisions of many to focus on the UK’s capital,” said Taylor.
The forthcoming London mayoral elections were also high on investors’ agendas. Property Weekrecently revealed that a number of high-profile developers had donated to Labour’s David Lammy, including Galliard Holdings, Mount Anvil’s chief executive Killian Hurley and Minerva founder Sir David Garrard, but the survey found most investors favoured a Conservative candidate.
A change in the political colour of the mayor of London came out as the political factor they felt would have the biggest negative effect on PRS investment