Growing appetite for institutional investment in residential property, says Mill Group

Despite an increase in the number of organisations investing in private rented residential property, market fragmentation and supply shortages are preventing larger-scale investment, according to research from property investment managers Mill Group.

 

Compared with previous years, the research - conducted among 60 institutions - found increased appetite to invest in residential property, with the majority (85% - up from 77% in 2013) of respondents having already done so. 

 

The research revealed that in the eyes of the investor, the private rented sector (PRS) is in fact twice as popular as student accommodation, and seven times more popular than social housing; sectors which combined are worth c. £840bn. With institutional investors accounting for less than £20bn, the sector is still a source of huge untapped potential. 

 

However it also found that the sector’s potential, and investors’ increasing appetite, is still not translating into investment on the scale needed to realise the critical mass required to overcome UK investor concerns.

 

The research also revealed that 60% of respondents have invested internationally, with the USA, Germany and East/South East Asia the most popular areas of investment, although all three have dropped in popularity in the last year.  Investors have simply shifted their focus towards markets seen to offer recovery opportunities following the global financial crisis. 

 

Speaking at an event last week, Housing Minister Brandon Lewis MP said: “We’re determined to build a bigger, better private rented sector, which is why we’re pulling out all the stops to encourage more investment and more landlords to offer their homes for rent.

 

“Today’s figures clearly show a strong appetite among investors to put their money into our private rented sector, not least because we in Government are looking to do the same, including through our £1billion Build to Rent fund, which is well on track to deliver 10,000 newly built homes specifically for private rent, and offering billions in Government-backed guarantees to unlock finance at below market rates.

 

“So the last thing we want to do is strangle this growing industry in red tape and introduce new regulations, which would push up rents, deter this strong interest from investors and lead to fewer homes being available for tenants to rent.”

 

Andrew Smith, Executive Director at Mill Group, said:  “This research clearly shows investors are more ready than ever before to invest in much-needed rented housing in the UK.  They are committing resources to the sector, but progress is being held back by a lack of internal expertise and the limited supply of suitable stock.”

 

“Accordingly, joint ventures remain a preferred route into the sector, with investors looking for management expertise and comfort in numbers.”