It wasn’t so long ago that residential was considered an alternative asset class. From results to research papers, conferences to corporate activity, these days it’s beginning to dominate. But there are clouds on the horizon.
It featured heavily at the London Property Summit on Wednesday. And again at the Westminster Property Association’s annual lunch the following day. Resi specialist Grainger’s results shone on Thursday (net asset values up 20%, profit before tax up 26%). And next month sees the landmark launch of the UK’s first residential REIT.
Housing minister Brandon Lewis told the London Property Summit he wouldn’t be trailing anything in next month’s autumn statement. In doing so he set tongues wagging. What was it he wouldn’t be trailing? Further devolved power to cities beyond Manchester that would enable local authorities to invest in housing development? Changes to permitted development rights? Business rate reform perhaps? We’ll know on 3 December. But speaking to EGTV after his speech, he was clear in one ambition: he wants to see more institutions investing in the private rented sector.
Significant is the launch next month of the UK’s first residential REIT. Mill Group plans to buy up a £50m portfolio of flats and houses over the next 12 months. The rationale makes sense. In the South East provision is significantly short of need. The rented sector is expected to grow from 25% of tenure to at least 30% in the next decade. This, and the fact that the structure is common in the US, means Mill Group is unlikely to be the last to come to market here.
Lewis ruled out the creation of a specific PRS use class this week (“There you go, a straight answer from a politician,” he said) but feelings run high as to what more needs to be done to move residential further up the public and private sector agendas.
There are challenges ahead. With 25 weeks to go until the general election, politicking will intensify. Mansion tax talk will fuel fears and cool transactions. Continued growth in house prices and a strengthening economy will heighten expectation of a rise in interest rates. Talk of mortgage restrictions could resurface.
And then there’s pressure from businesses worried about the scale of office-to-resi conversions. The rate at which office space is being lost to other uses in central London could affect employment in the capital, the Westminster Property Association warned this week.
Chairman Dan Van Gelder told the WPA lunch of his concerns that 5.5m sq ft of office space had been lost in the past four years. It could, he said, equate to 78,000 fewer jobs in the capital.
That argument will rage. There are plenty of blighting, sixties office blocks in London’s outer boroughs and beyond that would benefit from conversion. But this cannot happen in employment hotspots at any cost.
None of this will deter property investor interest in residential. And neither should it. Residential is a long-term play that would solve long-term problems. And there’s nothing that’s alternative about it any more.
A couple of interesting appointments by GVA this week. With parent company Bilfinger Real Estate, it has poached two directors for a new cross-border investment team to entice overseas money to the capital. Nick Bourke and Ron Perlmutter have been appointed as directors of real estate for the Melbourne, Australia, and Toronto, Canada, business hubs. For what it’s worth, Bourke joins from DTZ, from where you can expect similar announcements to emanate.
From Cannes this week, to China in June. A new sister show to MAPIC launches in Shanghai next year. The Retail Real Estate Summit – which will inevitably be dubbed MAPIC Shanghai – aims to capitalise on Chinese consumers’ demand for European and UK brands. The show hopes to enable retailers to break into and expand in the Chinese market. Some 800 delegates are expected, with almost half expected to be European retailers. It’s another mark of the internationalisation of the property and retail markets. And for more on that, see our Middle East special this week.
