With stock markets the world over recording huge losses over
the last week and the volatility in the markets set to continue due to
the euro zone sovereign debt crisis, concerns over the down grading of
the US credit rating and the weak US and EU growth figures, investors
are pondering which asset class to seek refuge in. Do they place safe by
moving their funds into cash or commodities such as gold, or do they
stay put in bonds and equities, or go for investments in “bricks and
mortar” property investments? (source)
In the UK, mired in recession with
increasing inflation and flatline GDP growth figures which do not even
feign to reach 1 percent, the prospects are not different. But in the
Islamic finance space, property is emerging as a glimmer of hope for
investors, albeit highly selective and refined niche opportunities such
as the high-end luxury residential market; student accommodation and
logistics and warehousing.
In the luxury residential market,
UK-based asset manager, London Central Portfolio (LCP) last week
launched a Shariah-compliant residential London property fund, the
London Central Apartments Fund, which is aimed at both domestic and
overseas investors and which is targeting average annual returns or
10-13 percent per annum. For overseas investors there is added advantage
of paying no capital gains tax.
According to Naomi Heaton, chief
executive of LCP, “recent world events have shown that assets displaying
less of a ‘knee-jerk’ reaction can provide valuable diversification in a
volatile investment environment. Prime bricks and mortar look set to
become the asset of choice during these testing times.”
She
maintains that the London Central Apartments Fund would appeal to
wealthy clients, both domestic and overseas investors, who are looking
to invest in property in the capital. “The world’s super-rich are
viewing prime London residential property the same way as they do Gold
and there is a limited supply of both. Even taking into account the
effect of the credit crisis, prices in this tiny six-square mile area
have risen by an average of 8.2 percent each year over the past 15
years. Rental yields run at approximately 4.5 percent a year. Our new
fund will offer institutional and private investors access to a
professionally managed and diversified portfolio in all of the
recognized postcodes.”
HM Land Registry quarterly sales statistics
also show a continued de-coupling from the domestic UK market as prime
London Central residential property continues to surge ahead.
However,
the bigger opportunities may lie in the student accommodation market
where one Shariah-compliant bank, Gatehouse Bank, a London-based
Kuwaiti-owned wholesale Islamic investment bank, has completed its
latest acquisition — a 30 million-pound newly built student
accommodation property in Glasgow, Scotland.
This is the bank’s
fourth acquisition of a student accommodation property, thus bringing
the total value of Gatehouse Bank’s real estate portfolio to 280 million
pounds.
The Glasgow purchase, according to Gatehouse Bank,
represents a net initial yield of 7.06 percent and delivers a cash yield
of 8.0 percent per annum and follows the acquisition of two earlier
student accommodation properties in Loughborough and Liverpool, as well
as a third student accommodation property in Oxford.
Last year in
the UK, Gatehouse acquired two student accommodation properties, the
Europa building in Liverpool and the Optima building in Loughborough.
The properties, developed by and leased to Watkin Jones Group, are well
located in the university towns of Liverpool and Loughborough. This
latest Glasgow acquisition is similarly developed by and leased to
Watkin Jones Group and is well located in the center of Glasgow close to
three of the city’s major universities including the University of
Strathclyde, the Glasgow Caledonian University and Glasgow University.
Fahed
Boodai, chairman of the board of directors at Gatehouse Bank, is
confident that “student accommodation is a sector of great importance
that we believe will deliver strong investment opportunities for the
maximum benefit of our GCC clients. This is an excellent acquisition
that recognizes the importance investors are placing in student
accommodation as an investment opportunity that delivers outstanding
returns. I am pleased to report that the latest Watkin Jones acquisition
has proven Gatehouse Bank’s position as a market leader in the
development of commercial real estate solutions for a savvy GCC investor
audience. As the fourth student accommodation property acquisition to
date, Gatehouse Bank demonstrates the exceptional performance of a Real
Estate team, which has consistently brought to market high performing
transactions with solid yields and long term income for the benefit of
our investors.”
The purpose built student accommodation sector is
already a well-established real estate sector in the UK worth
approximately 6.5 billion pounds, and is one of few asset classes
experiencing rental growth. According to Adam Cavanagh, head of real
estate at Gatehouse Bank, “an inherent supply and demand imbalance in
Scotland has consistently delivered close to 100 percent occupancy rates
and, with student numbers forecast to grow at 10 times the rate of new
completions, we can expect to see sustaining rental growth as well as
increasing capital values in the sector.”
The UK remains an
attractive market for student accommodation given that student numbers
continue to increase and demand for university places is at a premium.
This, despite the fact that local student fees in England is set to
increase substantially for the next academic year, starting in September
2011. The latest figures, according Ethical Asset Management (EAM)
Limited, suggest that demand for higher education in the UK remains
strong, with 2.4 million full time students.
Applications for
2010/11 jumped to 688,310, which is up 22.9 percent over the previous
year with overseas applicants registering a healthy 28.7 percent
increase. In fact, according to one property consultant, some 140,000
applicants missed out last year due to shortage of student accommodation
spaces.
Student accommodation experts stress that there are
several demand rivers that will see the sector sustaining strong growth
over the next few years. This despite the combined impact of coalition
Conservative/Liberal Democrat government’s spending and the impact of
the Browne Review on university education funding.
The demand
drivers include the possibility of ceilings removed on “Home” and “EU”
students, which means that the top universities would be able to expand;
student numbers are projected to increase by over 10 percent over the
next decade or so; similarly, the number of overseas students are
projected to increase even more - well beyond the 350,000 currently
studying at UK universities; many of the top universities tend to
guarantee accommodation especially for overseas students and first year
home students, which makes the market even more sustainable; there is a
huge shortage of purpose_built student accommodation in many university
towns; many universities also grant leases or nominations agreements,
which means that the rental income streams are secure; and there is also
a low delivery of new affordable council and private housing stock in
general which means supply is severely depressed and has resulted in
upward rental growth is many university towns and cities.
The
student accommodation sector has also performed well despite the
downturn in the UK economy and the commercial and residential property
sectors in general.
In the warehousing and logistics sector,
another UK-based Islamic investment bank, Bank of London and The Middle
East (BLME) has launched a 200 million-pound Light Industrial Building
Fund (LIBF) which specializes in the light industrial and warehouse
sector, and last month acquired its first light industrial unit,
Interserve House Christchurch, Bournemouth. The fund is targeting annual
cash distributions to investors in excess of 8 percent.
According
to Derek Weist, director, asset management, at BLME, “Middle Eastern
investors are increasingly looking to diversify their UK property
investments outside of London residential and commercial property. The
LIBF provides our clients with the opportunity to expand their UK
investment portfolio. Investing in the LIBF can complement a general
strategy of buying large assets let to single tenants in central London,
as light industrial buildings provide further tenant diversification,
geographical spread, and a higher level of income. We also believe that
this sector is set to experience a recovery in value similar to Central
London.”
In June also Gatehouse Bank completed the 51.7 million
pounds acquisition of a core manufacturing and logistics facility let to
Rolls Royce, in Glasgow. The fact that the industrial market has also
shown resilience in 2010, stressed Gatehouse Bank, makes this a solid
investment opportunity with significant capital growth potential and
secure current income returns.
“We believe this demand is set to
continue, resulting in increases in capital values over the projected
hold period to generate strong returns for our investors. There is
considerable demand at the moment for properties let to strong tenants
on leases of 10 years or more, and it’s interesting to note that
investors are starting to look at locations outside of central London
where properties have better pricing levels. The Western sector of the
M25 motorway is a key strategic location for corporate occupiers, due in
part to its proximity to national and international transport links,
and the InterContinental Hotels deal is a prime example of the way in
which interest is shifting away from the capital,” said the bank in a
statement.
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