Investors target specialist property

Knight Frank considers the specialist property sector for investors.

Investors target specialist property

Specialist property is being recognised by investors as a source of long-term secure income. Around £70.4bn has been transacted in specialist property assets since 2007 and its popularity is set to continue, with investment volumes forecast to reach £15bn this year, according to Knight Frank’s new report Rest Assured Specialist Property.

In a period of geopolitical uncertainty, investors are seeking out long term, safe investments and this in turn is driving the demand for specialist property assets. Investment in UK commercial property volumes dropped by 35% in 2016 to £46bn, however £12.7bn (27.5%) of investment was in specialist property, representing a new high.

Shaun Roy, head of specialist property at Knight Frank, said: “The growing appetite for long-term secure investments with good covenants amid the current uncertainty has intensified, which is driving the demand for specialist property.

“Investors now regard the granularity of the income derived within the specialist sectors as a positive rather than a threat, and a facet that improves its durability of income. The outlook for the coming year is positive and increased liquidity should draw particular attention to specialist assets.”

Knight Frank believes the desirability of specialist property will continue going forward. It said that as capital growth slows across many commercial property sectors and money flows more freely, investors will be drawn to these types of assets, which offer relatively longer lease term agreements and index-linked rents.

Income returns within the sector reached 5.7% in 2016, exceeding the traditional commercial sectors, a characteristic which will be particularly important in ensuring specialist property’s pace as a highly sought after commodity.

Specialist sectors

Four of the five specialist sectors saw investment volumes equal or exceed their five and ten year averages:

Healthcare: £6.3bn has been invested into Healthcare property over the last decade, 81% of the total investment has occurred over the last five years.

Hotels: £3.4bn has been invested into Hotel assets, the second most transacted asset type amongst the specialist sectors in 2016.

Automotive: The sector experienced the highest recorded investment in 2016 at £0.8bn, and is the only specialist sector to have seen volumes rise on an annual basis.

Student Property: £3.1bn was transacted in Student Property in 2016 – the second highest recorded investment into the sector.

PRS: £5bn was invested into the Private Rented Sector in 2016, the most transacted asset type last year.

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