Rouzbeh Pirouz is Co-Founder and Senior Partner at London-based Pelican Partners, a real estate and private equity investment firm.
Investment opportunities that focus on areas undergoing regeneration are always appealing. They offer potentially high capital growth eventually, and in the meantime good rental returns.
In the UK, many of the biggest property regeneration schemes currently taking place are on the outskirts of London. Villages and towns commutable to central London have always been popular with commuters, of course, and right now there are a number of opportunities for investors.
Why investors should consider property regeneration schemes early on
An example of the type of regeneration project we’re seeing a lot of is The Green Quarter in Southall. This development is situated in West London and is totally transforming a large undeveloped, industrial site into a whole new landscape. And today’s property regeneration projects don’t just focus on the housing and facilities, they include parks, community areas, open green spaces, wetlands and much more. This particular development is typical of the new breed of regeneration projects. It’s close enough to major stations and airports and it offers a town centre that is diverse and culturally rich.
And the best time for investors to get involved in schemes like this is early on. Choosing to invest into property regeneration projects isn’t solely about investing in a residential property. It’s about investing into the wider ethos of the whole area’s transformation. It’s about seeing the potential of the area and its future connectivity with other regions that are already well established and attractive to buyers and renters.
While communities are naturally formed when people move into a regenerated area, it always helps to bed in a new development if the project is located somewhere that can build on established facilities and networks. This allows the regeneration development to evolve into something that takes the best from the established facilities and becomes something completely new.
By carefully selecting the area for regeneration, the developers want to ensure that there is the potential for a buzzing community. It has to be an area that people already like and would want to live in. And investors who get involved at the beginning of these projects have enormous opportunity to benefit from this evolving community.
Sustainable regeneration projects will deliver bigger returns over long term
Investors are also scoping round for natural, sustainable and community-driven developments, particularly since the pandemic hit in March 2020. The past 15 months have led to a certain shift in priorities for many property investors and buyers.
According to a Savills survey from autumn 2020, almost two-thirds of people value outdoor space more than they did before COVID-19 arrived. Therefore, investors should look for regeneration projects that are located next to green areas or include creating new open spaces.
Even before the pandemic, there has been a move towards including natural open space into regeneration developments. It’s much more significant now than an aesthetic concern, or the planting of a couple of trees. It’s about purposefully designing a community space that will benefit resident’s mental health and wellbeing. Communities that are centred around green, open space are more likely to become strongly integrated and settled. And this is an important consideration for investors and developers alike.
For regeneration schemes that cover a wide area, it’s particularly important for the development to be flexible enough to accommodate consumer trends of the future. The biggest regeneration projects can take up to 20 years to complete, and obviously over that time consumer needs change. However, no matter when investors are considering buying, quality must be the top priority when it comes to buying into new homes.
Investors should look for ambitious projects with a wide scope
Going back to the example of the Green Quarter, it’s a great example of a really ambitious regeneration scheme that has a lot of potential. When complete, it will boast 3,750 new homes located in Ealing. The new properties will be set within extensive green space and will also be within quick commuter reach of Central London. In other words, it’s a carefully considered balanced redevelopment that will attract buyers and renters from many areas.
Originally a totally redundant old industrial site, complete with concrete car park, the Green Quarter is being transformed not just into a housing complex, but one of the most biodiverse residential developments so far. Alongside the houses there will be a specially constructed wetlands to encourage wildlife along with two separate green parks. There will also be the usual facilities, such as cafes, shops and a town centre square.
Other regeneration developments that compare include Kidbrooke Village and Royal Arsenal Riverside. Both of these have benefitted from up to 100% capital growth over the last decade.
Get in early with investing in lengthy developments early in the process
Developments on this scale take years, and this particular project began in 2016 and will be completed in various phases over the next 25 years. Investors who get involved at the start of a regeneration period like this can expect to grow their investment exponentially as the development and community evolves and beds in.
Regeneration property developments also tend to include a significant number of affordable homes, something that also offers good opportunities for investors. And with these projects, whether you’re an investor or an owner/occupier, you will be buying into a complete lifestyle rather than simply residential property.
Investing into a large regeneration scheme means investing in the whole area. For many people, the pandemic has refocused their mind on what they want from the area that immediately surrounds their home. Easy and quick access to facilities like swimming pools and gyms are more important than ever to many. Other facilities such as parks and swimming pools are also extremely important, as are green spaces, roof terraces and spacious restaurants and bars.
All of these are the kinds of considerations that regeneration developers should include in their projects. And for investors, it’s really important to look at the whole entity and research exactly what is in the offer for the residents or renters that you want to target.
Sustainability should be a major concern for investors
Sustainability is also a key theme for property investors. Developments that are focused on nature and green energy, for example, are better investments than those that continue to ignore these urgent necessities.
Developers should now be designing homes with energy efficiency and innovative sustainability facilities included as routine. They should save energy, be well insulated, incorporate the latest technology (such as smart heating systems) and be future-proofed as much as possible. Fixtures and fitting should also come under sustainability focus, such as integrated recycling facilities and dual flush toilets.
Investors considering buying into a regeneration project should check that this is all in hand, and that there are plenty of outdoor spaces to encourage sustainable living. This could be cycling paths, walking areas or running tracks, which should go alongside a diverse natural environment that actively supports natural recovery. This is particularly important on land that used to be industrial.
Research from the likes of BlueHealth show that residents having access to green spaces like this experience a positive impact on their mental health and wellbeing. According to the Office for National Statistics (ONS), for example, a 2019 piece of research shows that access to green spaces or open water increases house prices by 1.8%. In the two years since then, this has become more of a priority.
When investing in developments, whether they’re regeneration projects or not, it’s important to work out whether the whole project is as sustainable as possible.
More and more empty brownfield sites will be regenerated over the next few years. During a housing crisis, it’s vital to transform them into liveable community spaces. And while these projects need more investment upfront, they can pay off extremely well.
