What has 2022 meant for institutional real estate investment? 

by Keren Einhorn, Fund Manager

As we started the year it felt like we were putting the lockdowns and major impacts of the Covid pandemic behind us, and that 2022 could be the first straightforward year in a while.

The reality, of course, was quite different. As we approach the end of 2022 and look back, we’ll of course remember the challenges but it is also important to note the successes and how that propels us forward into the new year and long-term. 

For the funds team at LendInvest, this has been another landmark year as we end the year with our new fund structure, building on the foundations of what made us successful for so many years while also offering investors improved headline terms and structure. 

Reliability, above all else really, has been such a key theme coming through dealing with the challenges posed by 2022, and it will be required again moving forward. 

What happened? 

It is not easy to pick one major event in 2022 that stands out, as a combination of economic headwinds created an increasing degree of macro-economic uncertainty. 

Soaring inflation and political uncertainty have combined to create a cost of living crisis for UK households, while global inflationary pressures have caused the worldwide economy to deteriorate.

These include – but are not limited to – Russia’s invasion of Ukraine, surging global energy prices and continued Covid-19 related lockdowns in China.

This pressure intensified as a result of the government’s ‘mini-budget’ in September 2022, which saw the markets implied interest rates spike as a response to the hastened announcement. 

Since then, a degree of calm has returned to the market, but inflationary pressures still prevail. Although, with headline inflation deccelerating to 10.7% in November, the recent data do suggest that the peak has now passed. 

In this environment, of course, there has been a knock-on effect on the housing market, mainly on the interest rates of homeowners and landlords remortgaging.

However, despite what could be a gloomy outlook, the fundamentals of investment in UK real estate debt remain the same: the UK needs homes, and its existing housing stock is the oldest in Europe and needs upgrading. 

According to a recent analysis commissioned by the National Housing Federation and Crisis from Heriot-Watt University in 2022, the current housing requirement is close to about 340,000 new homes per year. The target has been missed every year going back to the 70s, and the housing supply deficit only grows.

The onset of the pandemic in 2020 exacerbated the supply pressure, with the most recent figures from the Ministry of Housing, Communities and Local Government showing the lowest number of housing starts since 1978 in Q1 2020 and an overall decrease in development of around 20% during Covid.

As the markets calm and homebuyer confidence begins to slowly return as interest rates lower, this supply pressure will be felt again. 

In this context, the right lenders were well placed if they could offer nimble solutions to the developers and property investors through new and adaptive products – funded reliably – that helped them deliver on this need.

Finding resilience

Our flagship Real Estate Opportunity Fund (REOF) has long been resilient to external market forces as the demand for real estate makes it a more reliable investment. 

This has been true over the past year, which has been made more impressive by our transition into our new LendInvest Secure Credit Fund II in the last few months. 

The fund has delivered positive returns consistently throughout the year, providing a non-correlated return with strong downside protection, and as we launched the new fund investors backed it with £200m of committed capital. 

In short, what this suggests is that real estate investment is an important part of investment portfolios, especially while the demand for the product is so acute. 

Given news towards the end of the year of the government abandoning its central housebuilding target, wannabe homebuyers will be looking more and more to creative, SME developers to build the quality homes necessary, and that’s where reliable funding can make the difference for the buyer and investors.

Capital at risk – The value of investments (and income) may fall as well as rise and you may get back less than invested. Past performance is not a reliable indicator of future results. Learn more about our approach to managing risk.

Income and capital repayments are not guaranteed. Investors cannot liquidate investments, but the underlying borrowers may repay early, late or not at all. Your capital is at risk. Past performance is not a reliable indicator of future results. 

The information we provide can help you make your own informed decisions, but it is not investment advice or a personal recommendation. You should seek independent financial advice if you are not sure a product or investment is right for you, or you do not fully understand the risks.

Issued by LendInvest Funds Management Limited (the Investment Advisor) on behalf of the LendInvest S.C.A SICAV-SIF S.A. – The LendInvest Real Estate Opportunity Fund which is authorised by the Commission de Surveillance du Secteur Financier.