Investors think residential property will be top performer, says report


Residential real estate has been touted as the top-performing asset class over the next two years according to a survey of investors.

Investors across the UK, Europe and North America have been surveyed to find out where they consider the highest risks and the biggest opportunities to be over the coming years. The research looked at 108 senior-level investors, and was carried out by Auxadi.

The findings revealed that residential property was still the most promising asset class, with more than two thirds (69%) saying they expect it to post the strongest gains over the next two years.

This compares with 56% who are backing central business district located offices, and 49% who are optimistic about food-anchored retail parks.

A major reason behind this is that, during uncertain times, investors tend to shift towards sectors with more predictable cashflows. As such, the investors surveyed also expect to see an increase in distressed assets coming to the market, with a 15% rise on last year.

Opportunities for property investors

The report points out that the residential property sector, across all three nations, has seen the “biggest post-pandemic bounce in sentiment in the past 12 months”. This brings it up from fourth place last year when it scored just 30%, demonstrating how confidence has returned.

The growing positivity towards investing in property stems from continued supply shortages, higher incomes and for-sale affordability challenges, notes the report. This could boost both major and secondary cities.

“A shortage of suitable housing stock is expected to not only drive institutional investment strategies in major cities but also lead to growth in secondary cities as a flight to affordability takes place,” says the report.

“This is underlined by the fact that over the past three years residential has grown its share of the total global real estate investment from around 26% in 2019 to 31% last year.”

A strong vote of confidence

With the difficulties faced by some investors in the economic climate, with the war in Ukraine and rising inflation having an impact, some real estate investors are being more bearish now, says Rima Yousfan, head of funds at Auxadi.

“Our research also highlights how the real estate industry is continuing to adjust its outlook as the pandemic subsides with renewed support for central business district offices and retail parks as well as a strong vote of confidence in the residential sector,” she adds.

Of all the investors surveyed, 65% already invest in residential real estate. The highest percentage (70%) invest in offices in central business districts, which is particularly pertinent in the post-Covid era.

After this, 45% invest in retail, both in food-anchored retail parks and high street, while 40% invest in supermarkets, 35% in industrial (logistics) and 19% in alternatives such as hotels, student accommodation, social housing and senior living.

Optimism over concern

The report concludes: “For the second year in a row, real estate investors are looking ahead at an uncertain investment landscape with optimism rather than concern.”

It adds that, as was the case during the pandemic, people are maintaining their long-term strategies while also “keeping one eye on current developments”.

“It’s clear that technology and ESG will play increasingly important roles in the industry, with those who are most adept at incorporating them into their investment processes ultimately most likely to reap their rewards in the long term.

“The coming 12 months will provide an interesting platform for investors to focus their attentions on their areas of expertise to gain a crucial advantage in securing deals and ultimately exploit the continuing opportunities presented within the global real estate market.”

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Investors think residential property will be top performer, says report


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