Core Plus

Core Plus: An attractive investment strategy in the property market

Property investment is a dynamic field that encompasses various strategies and concepts. One of these is ‘Core Plus’, which is enjoying great popularity. But what exactly does this term mean, and what opportunities does the Core Plus strategy offer investors? In this article, you’ll learn everything you need to know about Core Plus property and its benefits for your portfolio.

What is Core Plus?

Core Plus describes a property investment strategy that sits between ‘Core’ and‘Value-Add’. Whilst Core investments focus on stable, prime properties in prime locations and generally carry low risk, Core Plus targets properties that promise a certain degree of capital appreciation but also entail a degree of risk.

• Core investments: Low risk, stable returns.
• Core Plus investments: Moderate risk, potential for capital appreciation.
• Value-Add investments: Higher risk, active value creation through refurbishment or change of use.

The characteristics of Core Plus properties

Core Plus properties are typically of good to very good quality, but are located in emerging or changing markets. Their characteristic features include:

• Good location, though perhaps not in the very best city centres.
• Stable tenancy agreements with experienced tenants.
• Potential for rent increases or value appreciation through targeted measures.

Advantages of a Core Plus strategy

The Core Plus strategy offers numerous advantages for investors:

• Balance between risk and return: Core Plus properties occupy the ideal middle ground between safer Core investments and lower-risk value-add strategies.
• Growth potential: Property values can be significantly increased through minor refurbishments or management optimisations.
• Stable income potential: Core Plus properties generally generate a stable cash flow through rental income.
• Capitalising on market shifts: Investors can benefit from the development of emerging markets by investing in Core Plus properties at an early stage.

Risks and challenges of the Core Plus strategy

Despite its many advantages, the Core Plus strategy also entails risks:

• Market trends: A negative shift in the market can affect let-out rates and property values.
• Management: Poor management can lead to higher vacancy rates and lower returns.

A clear example of the topic: Core Plus

Imagine an investor identifies an attractive Core Plus property in a developing neighbourhood of a major city. The property, an 8-storey residential building, has been well maintained but has some areas with potential for improvement, such as outdated communal areas and unused roof space.

The investor decides to carry out minor refurbishment work to enhance the appeal of the flats and increase rental rates. In addition, they plan to convert the roof into a roof terrace to create an extra leisure area for the tenants. Within two years, rents are increased by 20 per cent as a result of the improvements, and the property’s value rises sustainably.

Through this intelligent combination of moderate investment and strategic management, the investor can not only benefit from stable rental income but also realise significant capital gains. This example thus demonstrates how Core Plus properties offer an excellent opportunity to achieve a balanced relationship between risk and return.

Conclusion

The Core Plus strategy is a promising way for investors to capitalise on the benefits of the property markets. By combining stable income with potential for capital appreciation, it represents an attractive choice for active investors. If you are considering investing in Core Plus property, a thorough analysis of the market and the specific properties is essential to make the most of the opportunities.