Specialist sectors yields become more attractive to Institutional funds

The specialist investment sector is witnessing an increase in activity from institutional funds, seeking and finding value in healthcare, hotels and student property, as prime yields harden to 2007 levels.

The ‘defensive’ sectors are providing a safe haven for institutional equity, preserving value and leading to an increase in demand and confidence in the wider economy. Gilt and bond yields continue to remain low and there continues to be an arbitrage between fixed income and property yields.

The Healthcare market has a positive outlook for the year ahead;
• The demand for the acquisitions of high quality purpose built care homes and new development opportunities is continuing to outstrip supply.
• There is a greater level of fluidity in the debt markets for the acquisition of existing care facilities, with transactions of middle tier stock increasing.
• In 2014 Knight Frank predicts a shift towards integrated investment models, a continuation of international capital into the UK, yield compression, new operators and funds entering the market, sale and leaseback occurring in the midcap market and also excellent forward fund opportunities.

The Hotels trading performance has remained incredibly strong with London transacting £1.37bn of sale volumes in 2013, and the regional transactional market is gathering pace.
• The fixed lease investment market has remained robust, enabling a shift in the market with yields achieving 4.5% in London.
• Moving forward Knight Frank predicts Bayswater, Shoreditch and Southbank as future investment hot spots, the break up and consolidation of portfolios and much improved debt availability.

2014 will see investors charging into the Student Property sector at full pace;
• Q1 2014 is seeing strong investor appetite for all opportunities and development stages across all regions. For the first time in six years, regional stock is as strong in demand as London assets.
• The emergence of institutional interest in the sector is seen in the increase in investment for direct let stock, where yields currently lie at 6% for London and 6.5% for the regions, we anticipate these to come in by 25bps before the end of Q1 2014.
• Predictions for the year ahead include a shift in transport strategic development in London’s fringes such as Greenwich, Wembley, Acton and Herne Hill, segmentation and bad bank action.

Shaun Roy, head of specialist property investment team, commented, “In 2014 London investment will remain buoyant across all three sectors. We predict the healthcare sector will become more institutionally recognised and funds will seek out opportunities in this sector.”

Last year the Knight Frank Specialist Investment team advised on over £3bn worth of assets collectively.