UK residential property development has a £7.5 billion investment pot

There is over £7.5 billion aimed at residential development and/or investment in the UK from a variety of domestic and international funds, CB Richard Ellis has revealed.

Around 70% of this money is earmarked for inner London broadly split between prime property at £2.5 billon and fringe at £2.8 billion.

Investors can realise high returns in excess of 20% on equity employed and there has been a noticeable £1 billion pick up in the level of potential residential investment funds over the past quarter, which can almost entirely be attributed to funds targeting prime central London, the consultants point out.

Consented schemes that will sell to owner occupiers and buy to let investors are the investor’s choice, reflecting a perceived security of return with an underlying inherent demand.

The level of investment available for residential stock could make a significant difference to current levels of house building. For example, the £5.3 billion allocated to fund residential schemes in Inner London could, in theory, support the building of around 9,500 units.

Most of the monies originate from UK based funds but around a quarter comes from North America with opportunity funds making up the largest category of investors, closely followed by pension funds.

‘The total level of interest from investors in the UK residential market relative to the overall level of investment and development is clearly significant, but pinpointing the investors that are ready to commit and at what cost of capital is the key. Many of these investors are keeping a close eye on the residential market, particularly in and around central London, and are waiting for available and deliverable opportunities with good finance terms,’ said Chris Lacey, executive director at CB Richard Ellis.

‘There have been a number of instances where investors have dipped their toe in the water through preferred residential partner arrangements with niche developers because there are a surprisingly small number of schemes that funds can readily commit to. The most sought after schemes are at the prime end of the market where the opportunities are hardest to find,’ he added.

CB Richard Ellis’ first quarterly UK residential investment monitor revealed that £1.29 billion has been assigned outside of central London up to the M25, £980 million is aimed at national development excluding London while £2.7 billion is earmarked for consented schemes that will sell to owner occupiers and buy to let investors.

It also says that £2.9 billion is aimed at speculative planning with investors interested in areas outside of London favouring this type of investment. Around a quarter of all funds are targeting investment stock.