Specialist property investment to hit £15bn in 2017 as investors seek secure long-term income

Specialist property is being recognised by investors as a source of long-term secure income – £70.4 billion 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.

The uncertainty experienced over the past year has affected commercial property volumes as a whole. Within this, specialist property volumes also experienced a fall for the first time since 2009 . However, this fall in volumes was not due to a lack of investor appetite, investors have in fact been dissuaded from making their purchases in the specialist arena as a result of the lack of available assets.

Shaun Roy, Head of Specialist property at Knight Frank commented: “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.”

The desirability of specialist property is expected to continue going forward. 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.

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

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

Hotels: £3.4 billion 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 £0.8 billion, and is the only specialist sector to have seen volumes rise on an annual basis

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

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