Brookfield Property Partners, the world’s second-largest real estate fund manager, plans to profit from London’s growing army of renters as home ownership becomes unaffordable.
The company, which is the listed arm of the Canadian private equity investor, outlined plans to retain around 1m sq ft of space across three high-end residential towers under development by Canary Wharf Group, which it owns jointly with the Qatar Investment Authority.
Although the UK’s £1tn residential rental sector is dominated by amateur buy-to-let investors with only a handful of properties each, in recent years institutional investors have begun developing purpose-built residential blocks to let out.
Brookfield said the professionalisation of the private rented sector, as more people rented, was a “global trend”, with people sacrificing home ownership to live in “urban, dynamic, 24/7 cities”.
Brian Kingston, chief executive of Brookfield Property Partners, said property prices in London had “always been high”, but were now “very high”.
“You would always have people starting out renting, but they would graduate to owning,” said Mr Kingston. “But in New York and London, you could be a fairly well-compensated individual and you could still not afford to buy.”
The proportion of income that families in the UK spend on housing has trebled over the past 50 years, according to the Resolution Foundation think-tank.
Mr Kingston said that unlike in New York, London almost entirely lacked any institutionally-owned residential blocks. “We think there will be tremendous demand for PRS and that doesn’t currently exist in London,” said Mr Kingston.
He added that the Canary Wharf development would be “targeted at young professionals”, although a typical rent was not yet available.
Houses built for rent in the first nine months of 2017
Although Brookfield is the largest owner of rental accommodation across the US, the Canary Wharf development will be its first European exposure. Mr Kingston said the sector was high-yielding, generated predictable cash flows over time and required less capital expenditure than office space.
Sir George Iacobescu, the chief executive of Canary Wharf Group, said the concept of developing to rent rather than to sell was new.
“The reality is that life in central London is expensive, and the downpayment [to buy a new home] is humungous,” said Sir George, who masterminded the transformation of Canary Wharf from empty docklands to a successful business district.
Sir George said he had thought “a lot” about how best to develop flats for rent: he would put shared living and dining rooms in each tower, while bedrooms and bathrooms would remain private. “We’re trying to create a lifestyle,” he said.
Brookfield and Canary Wharf Group are not the only property giants to dip their toes into the UK’s rental market in recent years. UK asset managers Legal & General Investment Management, M&G Investments and Oxford Properties, the real estate arm of a $72bn Canadian pension fund, have also joined in.
Despite this, the sector is still in its infancy. Big investors are landlords for around 1 per cent of the UK’s rental homes, according to data provider IPD, while the UK property industry trade body estimates that only 17,000 rental homes were built by its members in the first three quarters of 2017.
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