The traditional areas of the property market have taken a beaten over recent years, however there are still opportunities to be found within the asset class, it is just a case of looking at the more niche areas
As 2010 gets fully underway investors and industry commentators are speculating and hunting down the asset classes they hope will defend and enhance their investments.
Will this be the year emerging markets emerge victorious? Or maybe this will be the year the Chinese bubble bursts? Property is already on some people’s radar and property fund sales have risen in the past months, but opinion is still divided.
When talking about investing in property the asset classes that first spring to mind are buy-to-let and commercial property; the problems these two have had have been well documented over the past year.
Rental yields in the buy-to-let sector are down and with rising unemployment and job uncertainty tenants are not keen to move. This is great for those landlords with sitting tenants but not for those looking for new occupants.
The buy-to-let sector suffered, with research from Paragon Mortgages reporting only 10% of landlords plan to purchase property for investment purposes in the first quarter of 2010 due to a lack of suitable mortgage finance.
While average investment gains are picking up, £12,700 in 2009 as opposed to £15,000 worth of losses in 2008, a major concern of buy-to-let investors remains the lack of finance and this looks set to continue well into 2010.
Knock-on effect
Landlords may find themselves facing arrears as mortgage interest rates rise but rental and occupancy levels do not and the resulting spike in mortgage repayments will have a knock-on effect.
Not to be left out, commercial property has also had a hard time of it over the past few years, IPD’s Monthly UK All Property Index recorded some 25 consecutive monthly falls in the total return from property from July 2007 and July 2009.
We can all see it for ourselves when we walk through town centres and see the number of vacant shops and office units. To put it in context, commercial property recorded growth of 0.6% pa over six years, when compared with a 5% average for rental growth across the purpose built student accommodation sector.
While some commercial property funds are recovering, such as the Scottish Widows Life Property fund which reopened in December, the outlook is still vague and this will not go far in reassuring investors. Time will tell whether or not 2010 is the year commercial property will advance again.
These are some of the reasons why at a first glance property looks like an asset class to be dismissed, however, push aside commercial and buy-to-let and you will see niche subsets of property investment well worth consideration.
A highly recession proof branch of the property investment network is the private student accommodation segment.
Increased demand
In the last year alone, student numbers have grown by 12%, creating an increasing demand for accommodation which the market is struggling to supply. According to a Savills market report, the UK market for private student accommodation was worth an estimated £6.6bn in 2007 and is projected to grow to over £20bn by 2015.
Not only are the numbers of UK students in higher education growing, the frequency of overseas students attending university in Britain is increasing as it is the second choice for international students after the US.
Currently, overseas students make up 15% of the UK student population and this is expected to rise to 21% by 2018. These students prefer to be in halls of residence rather than houses of multiple occupation, often pay the rent for the entire year upfront and are more affluent and less price sensitive than UK students.
By providing halls of residence in prime locations and furnished to a high standard we can tap into this market.
Universities are increasingly finding themselves competing for higher calibre students from both internal and domestic backgrounds.
This impacts on the demand for high quality, secure accommodation for a student’s full tenure as students, and their parents, come to university with strict requirements for their accommodation.
Opportunities
There are a number of opportunities for investors to gain exposure to this asset class. Names such as Unite, Liberty Living (Brandaeux) and The Mansion Group should register on the radars of anyone looking at this sector.
The fundamentals of student accommodation investment can be applied to other aspects of private accommodation investment and there are a number of companies and investors cashing in.
Just this month, Acorn Care Homes, a provider of schools and care homes for children with special educational needs, was purchased by a Canadian pension fund in a deal that was reportedly worth £150m.
As the numbers of students entering higher education grows so too does another section of the population; in 20 years’ time, half the population of Britain will be over 50 and canny investors are cashing in by investing in private care homes.
Growing appetite
The launch of the Aegon Target Healthcare Property Unit Trust in November last year also highlighted the growing appetite of investors to be involved in niche asset classes perceived to be stable.
So, while the buy-to-let and commercial property sectors have been damaged and continue to look delicate, it is clear there are niche property investment opportunities open to investors.
So the next time someone dismisses property, tell them to take a closer look. Property is a very broad asset class and there are significant opportunities for those investors willing to look “outside the box”.
Andrew Freeth, director of acquisitions, The Mansion Group
