Nest has agreed to invest up to £1bn in build-to-rent properties alongside Legal & General and PGGM in a major commitment by one of the UK’s largest pension funds.
The initial commitment will amount to £350m and will be directed to building and managing rental properties on brownfield sites in city centres.
Nest, established in 2012 to support the introduction of auto-enrolment pensions, has assets worth £43bn.
“We can see there’s a critical shortage of housing supply, coupled with increasing demand for high-quality rental homes,” said Elizabeth Fernando, chief investment officer at the workplace pension fund said.
“By building more properties, we can extend to our members a great investment opportunity while helping to meet this demand and bolster the rental market,” Fernando continued.
The build-to-rent sector has grown rapidly over the past few years as the price of property has skyrocketed and amateur landlords have backed away from the sector.
According to Savills, the build-to-rent sector attracted £4.5bn in investment last year, the second-highest level on record.
The estate agent recently estimated the sector would need £300bn of investment by 2031 to meet future demand levels.
The move comes as the government seeks to direct more pension capital into domestic assets like housing and infrastructure.
The Treasury estimates that a one percentage point shift of pension funds into productive assets could mean £8bn of new investment.
One of the first steps of the review will be to pool the 87 different funds which make up the £360bn Local Government Pensions Scheme.
Pensions minister Emma Reynolds said the deal “highlights the opportunities for our pensions sector to contribute to our communities and grow the economy”.
L&G and PGGM have already piled more than £3bn of capital into the build-to-rent sector over the past eight years, creating more than 10,000 homes.
“Institutional investment has an important role to play, and we expect investor demand in the UK’s build-to-rent sector to continue to grow,” L&G chief executive António Simões said.