RESIDENTIAL INVESTMENT

Transcription

1 RESIDENTIAL INVESTMENT jll.co.uk/residential

2 2 INTRODUCTION Residential investment is not just about build to rent or PRS; the sector offers opportunities across the risk spectrum from ground rents, shared equities and reversions to strategic land and development funding. JLL have class leading specialist teams to cover all these areas. SIMON SCOTT JLL HEAD OF

3 3 The case for residential investment, and particularly within the Private Rented Sector, has only recently gained the recognition that it deserves. Institutional investment in the UK residential market is not a new phenomenon. However, prior to the 1988 Housing Act, Private Rented accommodation was a second class tenure and the only way to sustain returns was by consistent under investment in the properties. Pension funds and other professional investors became concerned with the negative brand associations with this activity and had largely exited the market by the late 1980s. The creation of Assured Shorthold Tenancies (ASTs) made it possible to charge a market rent. Investment in the sector was given a fillip in the mid-90s through changes to mortgage market rules that made it possible for individuals to take out investmentgrade mortgages for residential property. The proliferation of the Buyto-Let sector since that time has been a phenomenal success story, with circa five million properties valued in excess of 1 trillion and annual lending in the sector now topping 25 billion. This image and front Angel cover Gardens image - Manchester, supplied by Moda Moda

4 4 THE PRIVATE RENTED SECTOR The Private Rented Sector is increasingly recognised as a key component in a diversified portfolio and has consistently outperformed other property sectors. Market overview The demonstrable level of rental demand has attracted a number of sophisticated buyers to the UK housing market, ranging from institutional investors to specialist owner operators. With Housing Associations and Private Equity houses increasingly looking for opportunity in the sector the demand for product and depth of this demand is continuing to grow on an almost daily basis. The make-up of the UK residential market has evolved in recent years and the Private Rented Sector (PRS) has grown in prominence at an unprecedented rate. Private rented tenure has grown from 10% to 19% of households since 2000, while the proportion of renters aged between 24 and 35 years old has more than doubled. The millennial generation is recognising that renting is a tenure of choice and not always of necessity. The demand side is compelling, we are not building enough housing and housing is increasingly being seen as unaffordable. Driven by favourable returns and recognition of the growing importance of PRS in the UK housing market, a JLL survey of institutional investors in 2016 revealed that those who wished to invest in PRS over the following 12 months were seeking to allocate 24% of their capital towards the sector. Crucially, the allocation to PRS exceeds that of all other alternative asset classes. Scale has often been cited as a barrier to investment but the reality is that the private rented residential sector is twice the size of the investor-owned commercial sector. The key issue that needs to be addressed is with an increasingly discerning customer base, how do investors service this demand? BREAKDOWN OF INCREASED ALLOCATION BY SECTOR If you plan on increasing your exposure to alternatives over the next 12 months, how will you allocate this increase between sectors? 24% 19% 14% 11% PRIVATE RENTED SECTOR/BUILD TO RENT STUDENT HOUSING INFRASTRUCTURE AND RENEWABLES HOTELS 10% 10% 9% 4% SOCIAL RENTERS HEALTHCARE LEISURE DATA CENTRES

5 RESIDENTIAL RISK AND REWARD, LAST 10 YEARS ( ) 5 RISK LEVEL* 9.5% REWARD** 7.5% REWARD** 6% REWARD** 6% REWARD** UK RESIDENTIAL PROPERTY UK EQUITIES UK COMMERCIAL PROPERTY UK GILTS *Risk standard deviation of total returns Source: JLL, IPD **Reward average total return %pa SHIFT IN OCCUPATION: YEAR OLDS PRIVATE RENTAL OCCUPIERS OWNER OCCUPIERS SOCIAL OCCUPIERS % OF HOUSEHOLD TENURE 0% 70% % OF HOUSEHOLD TENURE 0% 70% % OF HOUSEHOLD TENURE 0% 70% Source: JLL, English Housing Survey HOUSE PRICE TO MEDIAN INCOME MULTIPLE x4 x6 x8 x Source: JLL, ASHE, Nationwide

6 6 BUILD TO RENT PRIVATE RENTED COMMUNITIES Build to Rent is a label created by the industry regarding the delivery of the sector. Going forward, the long term success of a development is about creating communities with renters-turned-clients at the centre. This is what we like to call Private Rented Communities (PRCs). There are many similarities between the more mature student accommodation sector, and developing bespoke product for rent. These larger scale developments offer the opportunity to incorporate facilities that are more commonly found in purpose built student halls; delivery reception areas, gyms, cinema rooms, common rooms, entertaining suites. Investors recognise the placemaking opportunity that purpose-built private rented stock can provide to largescale regeneration, as well as single asset opportunities in strong and emerging rental markets. While it still requires strong support from planners and Government advocacy, there is no question that this emerging asset class will irrevocably change both the quantity and quality of UK private rented stock. Government is also increasingly supporting this product evolution in the planning regime, with discounted market rents and covenants being used to assist viability and reducing pressure on the need for a specific use class designation. Unit design is also evolving to align consumer requirements with commercial viability. EFFICIENT EXAMPLES OF 1 & 2 BED APARTMENTS Images supplied by Aros Architects

7 THE BENEFITS OF PRIVATE RENTED COMMUNITIES 7 INVESTORS DEVELOPERS LOCAL AUTHORITIES RENTERS Increasing opportunity for scale investment Placemaking opportunities creating value growth Long term cashflow with high correlation to fund liabilities Portfolio diversification Reduces delivery risk Reduce funding and marketing costs Enhance delivery times creating opportunities to scale up Often reduce section 106 commitment thereby increasing viability Drives early regeneration by catalysing swifter absorption Helps create integrated communities Meets rising local economic need for greater quantity and quality of rented stock and management Bespoke, flexible, efficient and convenient living, with focus on customer and service Long term sustainable investment into properties and homes Provides a greater depth of choice and the ability to tailor this to suit individual preferences Counter cyclical advantages of community investment irrespective of economic cycle Creates a community of likeminded people by meeting specific local demographic needs

8 8 ALTERNATIVE RESIDENTIAL INVESTMENT JLL offers a comprehensive and holistic service for our clients. Working closely with our colleagues across various service lines we combine technical expertise with on the ground local and global market knowledge. Affordable housing investment We provide expert property solutions through rationalising existing stock, the bespoke funding of new developments and the financial optimisation of assets for clients seeking balance sheet efficiency. We provide specialist capital markets guidance from in depth consultancy and viability analysis to close communication with other external advisors. Supported living investment Transparent and predictable income streams with no operational risk underpinned by a significant supply and demand imbalance; Supported housing is a relatively new investment asset class with significant space for yield compression. Supported living assets are attracting specialist healthcare, institutional and traditional residential investors wanting long-term, index linked and government backed income streams. JLL Residential Capital Markets work closely with developers and investors to unlock long term investment into this sector. Shared ownership JLL work with developers, registered providers (RP s) and investors alike to structure innovative funding transactions to unlock value from new and existing shared ownership holdings. By aligning Institutional demand for secure, long dated income streams and RP s or developers desire to benefit from long term capital appreciation, through staircasing receipts, we create mutually accretive transactions. Shared equities The Mortgage Credit Directive, effective as of March 2016, has led housebuilders to reconsider their shared equity positions. We have the expertise to tap into this opportunity and help clients dispose and acquire shared equity portfolios across the UK.

9 9 Equity release Since 1991, 17 billion has been realised through equity release and the number of homeowners opting to release equity has increased considerably since Most recently, data indicates a 26% increase in value unlocked in H compared with H As this space grows, and larger portfolios are formed, we can help clients capitalise on future opportunities. Strategic land Our multi-disciplinary teams enable us to help clients source land opportunities and build long or shorter term strategies for them. JLL s market leading London land team, who in the three years between 2012 and 2015 completed over 200 transactions, totalling a value in excess of 5 billion are able to help provide a fully holistic advice. They are currently advising on c.315 acres of land and c.21 million sq ft of development accommodation. Development funding Our Funding team specialises in the structuring and sourcing of capital for residential developers and investors. Providing market leading consultancy across the capital stack, at all points on a project s timeline, and in a variety of corporate structures and jurisdictions. Ground rents From individual new build developments to large portfolios, we offer a comprehensive service to clients seeking to dispose or acquire residential ground rent investment opportunities across the UK. We advise on additional income streams obtainable from insurance, notice fees and block management. JLL's market leading position in the London residential development arena provides a platform to generate portfolios of scale for institutional ground rent investors. Old Oak - London, The Collective

10 GLASGOW EDINBURGH TOTAL UK EMPLOYEES 2,800 BIRMINGHAM LEEDS MANCHESTER UK RESIDENTIAL EMPLOYEES over 350 BRISTOL SOUTHAMPTON EXETER LONDON GLOBAL EMPLOYEES 60,000 1,000 staff locations 80 countries

11

12 RESIDENTIAL SERVICES Investment Affordable Housing Estate Agency & Lettings Valuation Mixed Use Development Planning Funding & Corporate Finance Land Sales & Acquisitions Research New Homes Sales International Agency Development Consultancy CONTACTS RESIDENTIAL INVESTMENT SIMON SCOTT RESIDENTIAL FUNDING TOM UPTON HEAD OF RESIDENTIAL ANDREW FROST T +44 (0) T +44 (0) T +44 (0) jll.co.uk/residential COPYRIGHT JONES LANG LASALLE IP, INC This publication is the sole property of Jones Lang LaSalle IP, Inc. and must not be copied, reproduced or transmitted in any form or by any means, either in whole or in part, without the prior written consent of Jones Lang LaSalle IP, Inc. The information contained in this publication has been obtained from sources generally regarded to be reliable. However, no representation is made, or warranty given, in respect of the accuracy of this information. We would like to be informed of any inaccuracies so that we may correct them. Jones Lang LaSalle does not accept any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this publication.