We Asked Investment Pros Their Best Ideas

Dec 29 2014 | 5:40am ET

Simon Redman
Managing Director, Client Portfolio Management
Europe, Invesco Real Estate

What was your best investment idea in 2014?

Investment into UK PRS or to use U.S. terminology “multi-family,” provides a credible investment opportunity for institutional investors. Rental housing in the UK is dominated by private landlords and is ripe for institutional investment. Although institutional investors have looked at the PRS sector for many years, it is a combination of factors today that make it compelling. For example, the UK has a year-on-year housing deficit where demand has exceeded construction.Moreover, the UK has a growing population and an occupational market where an increasing number of people are seeking to rent rather than buy.  Although the rental sector is growing, many rental properties remain of a poor quality—think 1930’s converted terraced house. Furthermore, much of the market is managed piecemeal by local estate agents. The opportunity exists to provide new, high-quality, centrally managed, purpose-built rental blocks, similar to those found in the U.S., which have the advantages of being purpose-built to satisfy the needs of today—fiber optic broadband, high energy efficiency and with  proper customer-focused professional  management.
 
What are you bullish on for 2015?

Given the opportunity and the significant interest identified in 2014, 2015 could well be the year for UK “multi-family.” Increasing demand for residential “for rent,” a lack of supply and pension funds increasingly looking for real asset investments which provide a stable, long-term income stream all point to the UK following other major institutional markets. In the US, for example, multi-family now makes up roughly 25% of institutional property portfolios; it was only 5% in 1980. There is no reason why the UK should not follow this trend.
 
A more traditional opportunity is to adopt a value-added, manage-to-core approach to investment. With significant capital being allocated to property, much of which is seeking stable, income-producing core assets, but with only a finite...supply of core assets, a manage-to-core strategy is an interesting approach. Investors willing to take slightly more risk but acquiring well-located properties which require some attention to make them “core” investments may be rewarded by being able to sell these assets to core buyers which dominate the market today.

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