Editor: Your article last week, ‘Institutional investors looking to invest more in the resi sector’, revealed a not unsurprising trend. With Brexit certainty and the ‘Boris bounce’ effect taking hold, the outlook for property – particularly residential – is bound to improve.
The article stated: “Returns profile remains the main reason for investing, followed closely by stability of income. Other reasons include development potential and defensive qualities.” It appears that while institutional investors are more confident, they are still somewhat hedging their bets – property’s defensive qualities being a key attraction. So what are the alternative subsectors that best capture the motivations expressed by institutions?
Step forward, student accommodation. Global investment in UK PBSA has helped create a £50bn sector and its fundamentals and defensive characteristics are strong, as universities look to the private sector to accommodate rising student numbers. Returns are also strong: 17.5% in London, 10.5% outside the capital.
Social and affordable housing also fits the bill, with a similar mix of robust returns and more defensive qualities, such as the inflation-linked character of the income streams and the certainty of income from approved providers, which receive housing benefit straight from local authorities.
Finally, there is co-living. According to JLL, funding for co-living space has risen by more than 210% annually since 2015 to £2.5bn, as increasing housing costs in cities fuel the trend, signalling rising institutional interest in the subsector. The latest entrant to the UK market is The Collective, backed by DTZ Investors, which recently announced plans to raise up to £650m for a co-living fund.
While the property sector across the board is forecast to experience an uplift in 2020, residential is likely to be vying for the top spot when it comes to reliability of performance and robustness of returns.
Daniel Austin, CEO, ASK