"The traditional metrics used by institutional investors, such as historical pricing and rental yields, are now lagging behind the need for more granular, nuanced data. These conventional metrics fail to capture the localised market dynamics that are crucial for identifying hidden investment potential and micro-trends that truly drive returns"
- Samantha Kempe
Amidst the changing landscape of the residential market, institutional investors find themselves at a critical juncture. As the Government rolls out ambitious reforms across the Private Rented Sector, the demand for energy-efficient, secure, top-quality and affordable housing continues to climb. Institutional investors are in a prime position to further immerse themselves in the residential market by funding the provision of safe, stable and high-quality homes.
While Government efforts have centred on developing new builds to satisfy housing demand, so far these have fallen short. With only 233,000 new homes built in 2021/22, missing the 300,000 target, a more holistic solution is still needed to fulfil residential requirements for quality housing. For investors looking to address this shortage while optimising returns, retrofitting and refurbishing existing housing stock presents a timely opportunity.
The reality is, that regardless of whether investors in the private rented sector are expanding portfolios of new builds or existing properties, the complexity of the market often poses challenges. Conventional, manual processes are not only labour-intensive but also highly inefficient, presenting a narrow and inaccurate perspective of the market.
A more strategic approach to investment is necessary, where data analytics and technology become integral factors in uncovering opportunities, enabling informed investment decisions and efficiently administering residential portfolios.
Harnessing the power of data and AI
The traditional metrics used by institutional investors, such as historical pricing and rental yields, are now lagging behind the need for more granular, nuanced data. These conventional metrics fail to capture the localised market dynamics that are crucial for identifying hidden investment potential and micro-trends that truly drive returns.
The greatest untapped opportunity lies in leveraging advanced data analytics to form a more comprehensive perspective. By integrating non-traditional datasets such as localised retail information and consumer insights, investors can gain a competitive edge.
Naturally, artificial intelligence sits at the fore of this revolution. By deploying machine learning algorithms, investors can predict trends and make informed, sustainable decisions faster than ever before. AI's predictive capabilities enable the early detection of areas primed for growth or decline, allowing investors to act ahead of broader market movements.
In practice, this can also mean a better understanding of local supply and demand dynamics by examining the relationship between commute times, rental growth, rental yields, incomes, time-to-let and more across the commute catchment of major cities. This can help identify the best locations that will deliver yield premiums at scale, while also being the most attractive to residents based on affordability and accessibility, resulting in more stable cash flows.
Advanced analytics can also assimilate factors like neighbourhood regeneration plans, green spaces, local amenities, employment levels, or school quality - factors that substantially impact residential appeal and, in turn, investment performance.
Tech-powered investing is set to transform residential real estate
Technology has vast untapped potential in real estate. We’re already seeing the beginnings of an industry where technology plays a key role in all aspects of residential investing - from finding potential investments to managing properties and connecting with communities.
Integrating technology throughout the residential sector demonstrates a utility that goes beyond financial returns alone, offering a chance to positively impact the environment and local communities. For example, investors must increasingly consider sustainability risks to avoid amassing stranded assets.
In practice, algorithms can identify and prioritise sustainability-focused retrofits with higher returns than new builds. AI also enables rapid insights into portfolios, highlighting risks and opportunities related to green metrics.
We have come to an important point in the evolution of the real estate market. Ahead lies a future where technology and investment strategies combine to create a more profitable and sustainable real estate sector.
As the potential of this emerging market is recognised, and investors determine how to capitalise on it, technology becomes vital for growing its value. Institutional investors leading the adoption of technology not only stand to financially benefit from an expanding market but can also have confidence their investments will withstand the move toward sustainability.
