UK Residential Market Invaded by Institutional Investors

The UK residential sector is currently undergoing the start of what could become a permanent change to the way houses in the UK are rented...

The UK residential sector is currently undergoing the start of what could become a permanent change to the way houses in the UK are rented. At present and for many years the UK residential rental market has been the playground of small buy to let landlords, with institutions owning just 1% of rental stock in the UK according to sources.

The U.K.'s Treasury has acknowledged this disparity with proposed reforms to real estate investment trusts, which some believe will lead to the U.K.'s first residential REIT in the next year or so. In its recently published Housing Strategy, the Government also promised to examine investment in rental property as a means of easing the U.K.'s housing supply crisis.

Because of these changes institutional investors have begun looking at the UK residential sector in a new light. In fact, two of the world's biggest institutional investors in residential property are proposing to spend well over a billion on UK property in the next 5 years, to target, not the prime central London sector, which has been doing so well of late, but suburban housing chased by young professionals who earn too much to qualify for social housing, but not enough to save for a deposit and buy.

The first player to make a wave was Akelius, one of Sweden's biggest property groups announced plans to spend £1 billion over the next five years. The announcement coincided with its first acquisition, a block of 16 tenanted flats in Clapham, South London bought for £4 million. The firm has since made several other acquisitions, and plans to have spent £100m by the end of 1H 2012 with assistance from its UK adviser CBRE.

By the time Akelius has spent its first £100m, Thames Valley Housing Association will hope to be well on its way to raising £170m to spend on the same target properties. LHVA will invest through its new subsidiary Fizzy Living, which it hopes will eventually hold a portfolio of more than 1,000 new-build apartments available for private rent, aimed at young professionals in London and the southeast.

THVA has also made its first purchase already, buying up 63 flats off-plan in a development by Solum Regeneration in Epsom, Surrey, using some (or maybe all) of the £30m of its own money already invested into the new venture.

Nick Jopling, executive property director of Grainger, the U.K.'s largest listed residential landlord with £2.4 billion of directly owned assets in the U.K. and Germany says: "The re-emergence of institutional investment in the rented sector in the U.K. is because many of the previous barriers have been overcome—political pushback, reputational concerns, benchmarking and property management capability are no longer the hurdles they once were. Many institutions are no longer asking, 'Why residential?' but instead 'How?'"

- Tuesday 06 March 2012

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