Social real estate (SRE) represents a £50bn-plus investment opportunity in the UK, with private capital urgently needed to support the delivery of SRE assets that cannot be met by over-stretched public finances.
As well as generating cashflows at spreads of 5%-plus a year over index-linked gilts, our analysis also reveals that SRE investments can deliver £3 to £4 of societal value for every £1 invested. These clear and quantifiable benefits are achieved in addition to attractive and resilient risk-adjusted returns – not at the expense of them.
SRE comprises physical assets that accommodate or facilitate social activities or services. As a diverse range of assets reflecting the diverse needs of society, they fit broadly into housing, healthcare and education segments and include affordable homes for key workers; GP surgeries; care homes; day nurseries; and facilities for people with disabilities.
A growing and ageing population means demand for SRE assets and the services they provide will rise significantly over the next 10 years. This structural demand, coupled with inefficient and insufficient stock, represents a perfect storm and underpins an urgent need for capital investment.
However, despite these compelling market dynamics, the SRE market is still significantly untapped – for example, at least £8bn is needed to meet the current 45,000-unit shortfall in specialised supported housing. Looking across other SRE segments identifies at least £50bn of investment required to deliver new assets and replace those that are no longer fit for purpose.
Investors were facing challenges posed by low interest rates and fully priced equities and bonds even before the uncertainty created by the Covid-19 pandemic. Looking beyond the main asset classes to find ‘alternatives’ that offer high-quality returns is increasingly common, but as SRE investment opportunities are aligned with socially responsible and sustainable investment aspirations, they are even more compelling.
SRE investments can offer the predictable, long-term, inflation-linked cashflows investors seek while delivering positive impacts for society. Win-win.
Adrian D’Enrico is head of social real estate at Alpha Real Capital