Investing in the UK private rented sector (PRS) could offer strong returns, with cities outside London showing the highest potential for rental growth, according to industry research from Hermes Investment Management.
Currently, only 1% of residential real estate in the UK is owned by institutional investors, compared with about 10-15% in continental Europe, despite the private rented sector making consistently strong returns since 2001.
Residential real state has delivered 10.5% per annum since the year 2000, whereas commercial real estate has delivered around 7% per annum.
Meanwhile, the number of private rented homes in areas such as Birmingham, Manchester, Leeds and Liverpool has increased by at least a quarter since 2001, as economic conditions improve and populations, employment rates and salaries all rise.
Ben Sanderson, director of fund management at Hermes Real Estate Investment Management, says: We’re entering a new phase of institutional investment in residential real estate. The example has been set by what happens in the US, what happens in the Netherlands, what happens in Germany.”
He adds that government support and an absence of regulation are advantages in the sector, and says that while some renters may be saving to buy, an increasing number are opting to rent as a lifestyle choice, due to the flexibility it affords.
Hermes Investment Management and Countrywide recently launched a UK residential property fund named ‘Vista’, with £95 million (€134 million) of commitments from cornerstone investors. With Greater London exposure capped to a third of the overall portfolio, the fund has already invested in three assets in Manchester, Birmingham and Nottingham, with a combined value of £13 million.
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