Key surveys seeking to understand institutional investor sentiment in the UK at the close of 2020 have demonstrated high levels of confidence in long term real estate investment performance underpinned by drivers such as diversification, stability, value and capital preservation.
The Knight Frank Residential Investment Survey interviewed leading investors, with a combined £62 billion already invested in student accommodation, PRS and senior living rental. A key trend is an innate optimism for the sector in the medium to long term with 44 per cent of respondents believing that residential investment sectors will outperform all other real estate sectors in 2021; growing to 70 per cent over the next five years.
The latest edition of the Aviva Investors’ Real Assets Study mirrors this sentiment in a survey with over 1,000 decision-makers at insurers and pension funds representing over EUR2 trillion of assets under management. A key revelation of this report is that 49 per cent of insurers and 37 per cent of pension funds are expecting to increase their allocation to real estate investment strategies.
A key consistency across institutional investors surveyed by Kantar was London being perceived as the most attractive investable market. About 39 per cent of investors consider London to be the most attractive investment location in Europe, followed by Berlin (35 per cent) and Vienna (23 per cent). For British professional investors, London was ranked as the top city to invest in with 67 per cent, followed by Berlin with 29 per cent and Amsterdam (22 per cent).
Aside from locational considerations, investors are also factoring in the differing maturity of markets. The Knight Frank report positions senior living as being higher on the risk curve based on its relatively new status as an investable asset. As such, strategies which seek to blend yields are incorporating safe assets, such as UK Build to Rent (BTR), which is now an established investment mechanism with proven income durability. During the recent Covid-19 lockdown period, BTR outperformed nearly all other property sectors.
Whilst short term operational challenges remain, the survey estimates that the current volume of capital committed to the market for professionally-managed rental accommodation in the UK to date will grow from £41 billion currently to £75 billion by 2025.
Investment into residential assets, incorporating purpose-built student accommodation, investment-grade and purpose-built rented accommodation (PRS) and senior living, has continued to increase, at a time when investment into some other asset classes has slowed.