Around 4% to 5% of the fund is tied up in healthcare, and Barrie is seeing yields for a reasonably established care home operator of around 5%. “If it is backed by the NHS it will be lower, because of the security factor. This is more like a government bond than a purely healthcare investment,” he says.
SAFE AS HOUSES
Self storage is another attractive niche property sub-sector. Events such as marriage, divorce and moving house point to people using self storage hubs more. The yields in self storage are pretty high, says Quirijns, at around 5.5% to 6%.
“Recently we have seen some new entrants in the market bringing the yields down,” he adds. Fidelity International’s investment director of real estate, Adrian Benedict, says that when you invest in real estate assets you are buying a lease. “A lease is, for want of a better word, a bond, the right to a stream of income.”
He adds that in real estate around three quarters of the total return comes from rents. For Benedict, property might have bond-like characteristics but it is not a bond proxy just because of the income it provides. “What you need to be aware of is that real estate assets depreciate unlike a bond,” he adds. “Then there is also no certainty about getting all your capital back. So it has a slightly different profile.”
LGIM manages more than £20bn of assets in the UK, which includes £1.4bn in student housing, and around £2.8bn of pension funds. Barrie is clearly not deterred by having to maintain illiquid property assets, saying that the fund could announce new deals in the alternative property space in the coming months.
