Investors coming back to UK residential property market

The proven long term performance of UK residential property and a 6% rise in average rents in the past 12 months are beginning to attract investors back into the market, where substantial opportunities now exist particularly for those with equity.

According to Savills Spotlight on Residential Investment report the current lack of debt funding for large, complex development schemes has created the greatest opportunity for residential investment.

Equity rich entrepreneurial property companies are taking advantage of this opportunity by either building schemes of sufficient scale to eventually sell on to institutional investors or teaming up in joint ventures with the institutions.

‘Forward funding of development projects in London and the South East is the key target market for these property companies. They are looking for investment partners or joint venture opportunities where their property skills can be matched to the big investors. However, they will go it alone and are not waiting to secure institutional backing,’ said Jacqui Daly, director of Savills research.

‘These investors are well capitalised putting them in a strong buying position and can respond quickly when opportunities become available. As a result we have seen healthy appetite from private property companies for small and medium sized investments where there is the potential to enhance value through active asset management,’ she explained.

The report says that conversely most traditional institutional investors are choosing for the moment to watch the residential market from the sidelines but increased investment is expected as the attractiveness of the sector grows in the long term.

‘The demand for rental property, both open market and intermediate will continue to increase particularly as for the foreseeable future stock levels are likely to fall. This we believe means the medium and longer term outlook for the rental market is broadly positive, with rental growth expected to exceed income growth over the next few years,’ added Daly.