Rising investment yields in the UK

PETALING JAYA (May 6): Residential investment yields are on the rise in the UK. This is reflected in data compiled by CB Richard Ellis Group (CBRE) in its “Residential Investment Yields” report for the first quarter of the year (1Q2015).

The report attributes this trend to key transactions in London by Legal and General and Aberdeen Property Trust, and Build to Rent funding by the Homes and Communities Agency (HCA) and major high-street lenders.

Residential properties in prime locations such as London Zone 2 recorded a stable net yield of 3.5% in 4Q2014 and 1Q2015. Good (well-maintained) secondary properties and secondary properties in the area recorded 4% and 4.25% growth respectively, in 1Q2015.

For London Zones 3 to 6, net yields for residential properties in prime, good secondary and secondary locations rose 4%, 4.25% and 5% respectively, in the same period.

A major factor in the rise of yields is the increased access to finance in the UK, boosting the overall market and pricing. Several UK banks committed large sums to finance private rented sector (PRS) projects in 1Q2015, some jointly, with loans via the HCA from the government’s Build to Rent fund.

The anticipation of access to low-cost, long-term finance through the government and Venn Partners’ £3.5 billion (RM19.09 billion) PRS Debt Guarantee Scheme as well as favourable emerging planning policy have added to the weight of money in the residential sector, resulting in the hardening of yields and a reduction in perceived investment risk.

Several key transactions by domestic institutions contributed to the residential sector. One key transaction is Legal and General’s acquisition of Ferry Lane in Walthamstow, where it plans to build more than 300 units for the private rental market. It reportedly plans to invest £1 billion in PRS over the next few years.

In another notable transaction, Aberdeen Asset Managers acquired 180 Stratford High for £60 million on behalf of its managed funds from Long Harbour, demonstrating the strength of appetite for scarce completed and let assets.