Property investment outside the core housing and shopping sectors is set to rise to a record £14.3 billion by the end of 2016, according to research by consultant Knight Frank
The report has found that while the traditional sectors of shops, commercial and industrial still make up the bulk of investment portfolios, momentum in specialist property is growing.
Last year, specialist property accounted for 18.3 per cent of UK commercial real-estate investment. Its four core sectors – hotels, healthcare, student property and automotive – saw volumes exceed five and 10 year averages, with hotels and student property setting new benchmarks over the year.
An average of 62 per cent of investment in the four sectors was from overseas investors.
The reports points to the scale of mergers and acquisitions at the operational level in specialist property as further evidence of growing momentum, noting that acquisitions are not only by private equity players but also real-estate investment trusts, hedge funds, family offices and US trade interests.
Investors’ primary focus now is the longevity and durability of their income return
Shaun Roy, head of specialist property investment at Knight Frank, said: ‘The market has changed. Investors’ primary focus now is the longevity and durability of their income return, and the specialist sectors are ideally suited to offer this style of investment product to the market.’
But the report raises a number of factors that could dissuade investors from specialist property: limited potential for change of use; a lack of available data to analyse historic and future performance; the hardening of yields as interest in the market increases; and operational risk.
There are also fears about political and regulatory input – such as the introduction this month of the National Living Wage, which has increased staffing costs for care home and hotel operators – and whether Britain will stay in the EU.
Even so Lee Elliott, head of commercial research at Knight Frank, said the momentum that had been built within the special property sectors would be maintained. ‘Despite emerging headwinds such as the EU referendum and the operational effects of the National Living Wage, the inherent qualities and drivers of these sectors will be alluring to a broad array of investors,’ he said.