L&G: Huge potential in purpose-built accommodation

Property investors have been told there is huge potential in purpose-built accommodation, including student and multi-family.

Rob Martin, global head of investment strategy and research for real assets at Legal & General Investment Management, was speaking at Fisher German’s annual property briefing earlier this month.

He said: “With demographics, I would simply say three words – resi, resi, resi. There is huge potential in purpose-built accommodation in the UK, whether that is student accommodation, or ‘multi-family’ accommodation which is forming a growing proportion of investment fund allocations.

“ESG is still really important, we must not lose sight of it. Occupiers care about it and investors are pricing in ESG capital expenditure when considering commercial property to buy.”

The panellists felt 2024 would be unpredictable due to economic factors such as both interest rates and inflation remaining high, and geopolitical factors like the US and UK elections, the rise of nationalism and conflicts around the world, especially in the Middle East and Ukraine.

Martin added: “Countries around the world are throwing up more barriers to free trade and immigration, all of which will have a knock-on effect on economies.

“The advancement of AI and the need for more and more space for data centres is also showing no sign of slowing down and will frame many decisions in the commercial property market.”

Global economist Dr Rebecca Harding highlighted that growth could be slow in 2024 due to the general uncertainty the year poses, both economically and geopolitically.

She said: “With major elections in the UK, the US and in Europe in 2024, unwise electoral promises could be made to win votes, or an ‘electoral stasis’ may develop where no decisions are made until after new governments are elected.

“This could result in interest rates staying high, and inflation not reducing as expected, negatively affecting demand in the housing and commercial markets.

“On the geopolitical front, we are yet to see what impact the violence in the Red Sea will have on global trade and associated markets, such as oil prices. Conflicts in the Middle East and Ukraine may escalate, putting further pressure on the global economy.

“And while ESG is still very important, reporting requirements are unclear at the moment, potentially resulting in ‘greenhushing’.”

“There is certainly a paradox between who pays for ESG and who gains from it. Investors may be seen to be benefitting more than the planet if the regulatory framework is not consistent or effective.”

James added: “2024 will give investors a lot to consider. The megatrends identified by Rob Martin and the global pressures highlighted by Dr Harding will be the overall drivers of the property investment market, but different sectors and geographical areas will behave differently.

“For example, LGIM has forecast that assets in London and other urban areas could perform more strongly in the period up to 2028. Whilst residential and industrial sectors are set to be the better performing sectors on average, we shouldn’t forget that the office and retail sectors are very diverse, and although adversely impacted by known obsolescence risk, will provide counter cyclical and repurposing opportunities.”