Savills IM brands affordable housing a ‘safe haven’

Affordable housing is being tipped as one of the “safest havens” for property investment in 2023, due to massive undersupply and constant demand in the UK and right across Europe. Savills Investment Management said 2023 would be a pivotal year in challenging the status quo and diverting investment into the sector, to facilitate more and better housing that matches the needs of residents with those of investors. This may also coincide with reforms that could liberate the affordable housing sector to better utilise both state grants and private capital. The quality of Europe’s housing stock is inadequate, typically old, not energy efficient and of the wrong size and in the wrong locations, Savills IM said. This provides opportunities to provide the right stock for emerging demographics and trends, at affordable rents for median earners in the locations they wish to live. Kiran Patel, global chief investment officer and deputy global chief executive of Savills IM, said: “It is clear that 2023 will present challenges for real estate investors. The scale of yield expansion remains to be seen, and payment shocks await those seeking to refinance within the next 12-24 months. However, this time of high market stress will present opportunities to those investors with the requisite market knowledge. “In the residential sector, we are positive on the outlook for affordable housing, where the role of private capital is only set to grow in importance, and despite rising yields we also see attractive entry points for investors in multifamily as valuations fall in line with the wider real estate market.” Savills IM said other safe havens for investors would include real estate debt, essential retail, and industrial and logistics. “Debt markets continue to provide attractive risk-adjusted returns with downside protection. Transaction flow for active lenders is likely to involve a high level of refinancing enquiries, as loans previously eligible for traditional bank debt now fall more squarely into the investment criteria for alternative lenders,” Patel said. In retail, demand for necessities would protect assets such as supermarkets and retail parks anchored by supermarkets, while demand for luxuries is likely to fall due to the cost-of-living crisis and rising inflation. Industrial and logistics continues to be seen as one of the key sectors with some of the strongest fundamentals. “There will be robust occupier demand for higher quality industrial and logistics buildings, most particularly in urban settings for the proximity to the end consumer,” Savills IM said. On offices, the investment manager remains cautious due to the impact of structural trends such as homeworking on security of income. However, it does highlight an opportunity to invest in well-located grade-B stock and bring this up to the standards expected by occupiers. “With a shortage of the type of space demanded by tenants, and the excessively high prices of the few available core products, there is an opportunity to invest in well-located grade-B stock and create the office stock of tomorrow’s flexible occupation needs, which can generate sufficient rental growth to offset higher operating costs,” it said. “However, this needs careful thought, and must meet strict ESG and energy efficiency standards to warrant the rent and avoid obsolescence due to inadequate facilities or ESG credentials.” To send feedback, e-mail julia.cahill@eg.co.uk or tweet @EGJuliaC or @EGPropertyNews Image © ANDY RAIN/EPA-EFE/Shutterstock