As real estate investors seek to diversify within the asset class, specialist property investment has become the next big thing and nowhere more so than the UK.
According to Knight Frank’s recently published Specialist Property, The Core Markets report, investment in alternative British property assets including student accommodation and hotels has become a critical component of investors’ core portfolios.
Darren Yates, partner of Knight Frank’s commercial research said: ” Based on our in-house forecasts, Knight Frank estimates that investment in the core specialist property sectors will break through the £10bn barrier in 2015 “.
The amount of capital being poured into property has done more than drive down yields, according to Knight Frank; the difficulty of securing traditional investments and the drive for diversification has put specialist sectors including automotive, property, healthcare, hotels and student property very much into the spotlight.
As a result of increased demand for specialist property investments, the UK is set to achieve a record year, with transaction volumes likely to reach £12bn by the end of this year. Knight Frank report that the number of deals in the pipeline with completions expected by the end of the year means their original forecast is likely to be exceeded by a significant margin.
In the first six months of the year, transaction volumes for student property reached £3.5bn and are expected to exceed £5bn for the full year. With a shortage of good quality assets, prime yields have been prompted to harden to 4.5%, with increasing pressure on pricing for secondary stock.
The hotel sector has been notably buoyant among the range of specialist property assets, with investments attracting significant attention and equity. Again, this sector is affected by the supply demand imbalance that exists in the market which could potentially lead to further yield compression.
” Specialist property is attractive to many investors and there are a number of common threads across the various sub-sectors, not least the strong alignment with residential, the opportunity to diversify away from traditional property and the occupier-driven nature of the sector. However, the key reason why we are seeing such an exceptional level of investor interest is the structural under-supply of high quality, purpose-built accommodation. This is supported by buoyant demand from increasingly discerning occupiers, ” said Shaun Roy partner of specialist property investment at Knight Frank.
The specialist property market continues to evolve as a segment in its own right, led by fixed income sectors such as hotels, healthcare and retirement accommodation but also encompassing automotive, student property and even private rented sector (PRS) residential accommodation. Nevertheless, fixed income transactions account for a small portion of the total specialist market.
Investor appetite for specialist property is growing in the UK amid an accelerating economic recovery that has broadened out around the country. There is underlying support for specialist investments from a combination of improving occupier demand, easier to access finance, a broader understanding of operators’ businesses and a willingness to take on greater risk.
Knight Frank say it seems inevitable that investors will move further up the risk curve in search of returns, increasing their operational exposure to these markets through turnover-related leases, direct let and management contracts.
As with other emerging property sectors over the years, yields on alternative assets historically start at a high level and harden as investor interest increases and some sectors have become more accessible in the process. As a result of the growth in capital values in recent years, many early entrants to the specialist property market have reaped significant rewards.
Source:: Property show rooms