Industrial/residential is the new office/retail.
In 1991, 37% of the UK institutional property market measured by IPD was retail; by 2001 this had risen to over 45%. In 1991, over 47% of that universe was offices; by 2001 this had fallen to 38%. The two asset classes combined constituted a massive 85% of the market. Industrial exposure was steady at around 13%, while the average allocation to residential property stood at less than 1%.
How things change! Retail is as popular with investors as Boris Johnson is in Scotland and offices are hardly flavour of the month post-Covid (see above). Industrial/logistics is now the investor’s favourite sector, while residential (around 40% of the world’s property assets) is the real estate asset class with the biggest growth trajectory.
The IPD UK universe, 1991 and 2001 (£m)
| 1991 | 2001 | |||
| Retail | 17,227 | 37.4% | 50,703 | 45.4% |
| Office | 21,736 | 47.2% | 42,866 | 38.4% |
| Industrial | 6,120 | 13.3% | 14,989 | 13.4% |
| Residential | 141 | 0.3% | 519 | 0.5% |
| Other | 865 | 1.9% | 2,685 | 2.4% |
| Total | 46,090 | 111,761 |
Watch the rise of the single family rental market
The race is on to deliver very large income-producing residential portfolios in Europe. Pension funds need professional, socially conscious and environmentally competent managers, and they need access to the European markets at scale. Build to rent fails to offer that scale and comes with development risk. How can this huge asset class be made investable? Answer: the single-family rental sector, which is about to be attacked.
Invitation Homes – the largest owner of single-family rental homes in the United States, owning approximately 80,000 homes – and others have shown the way. The key challenge is to build scale. In Europe, IMMO Capital is an example of an early mover.
