The Private Rented Sector becoming a major part of the UK residential mix seems ever more inevitable, with a number of speakers at RESI focusing on this as an important tool in combating supply-side issues.
In the “Are we creating the right products?” session, Bill Hughes managing director of Legal & General Property said: “There is a need for investment class residential development that will be a home for long-term capital. It won’t work with just anything – it has to purpose-built PRS stock. There has been a reluctance because investors have been reluctant to get their hands dirty with development, while some also fear planning. But we for one are now actively looking for enlightened, progressive local authorities to work with on this. There are at least 15 urban areas we’ll look to work with.”
The PRS market is mature in territories such as the Netherlands and Canada. Lisa Lafave, senior portfolio manager of Canadian business Real Estate, said: “In North America, PRS is institution-driven. You look to have a lot of capital that can move the dial quickly here. The issue as I see it is competition for sites – land’s just very expensive here – does it need some policy move so that sites can be carved out at the scale to make it work?”
There are various schemes inching forward in Manchester, while Liverpool has two big stories – Glenbrook’s The Keel, forward-funded by Moorfield to the tune of £30m; and a 230-unit scheme in the Baltic Triangle, acquired for £50m in August by the Vista fund created by Countrywide and Hermes Investment Management.
Philip Nell, fund director with Hermes, said: “PRS works for investors because it has delivered strong returns elsewhere. It’s also a good diversification investment, with a strong negative correlation to other asset classes such as gilts.
“The market is a big one. There’s £200bn of investable commercial stock in the UK, but £900bn of residential. Seventy per cent of UK landlords are private individuals and 88% of them only have one property, so it’s a fragmented market where competitors can’t offer economies of scale.”
Nell added: “The largest institutional risk is in not looking at this. There is a social need there, and as socially responsible developers we should be looking at it strongly. It’s an embryonic market, but I’m optimistic.”