Canada Pension Plan Investment Board has partnered with Kennedy Wilson in the latest major investment into the UK’s nascent single-family rental sector.

CPP Investments will initially commit £500M to the new joint venture, with Kennedy Wilson committing £56M. The JV will have an initial target of approximately £1B of asset value, including leverage, with the potential for further investment depending on market opportunities, the companies said in announcing the partnership.

CPP Investments will hold 90% of the new venture, and Kennedy Wilson will have a 10% ownership interest. The JV partners said they would target energy-efficient, new-build housing stock in “strong and growing local economies” through working with established UK housebuilders.

The UK SFR market had a breakout year in 2023, with investment reaching £1.9B, according to data from adviser Savills, more than five times the £360M invested in 2022.

The CPP-Kennedy Wilson investment programme has been seeded with properties from two existing developments sourced by Kennedy Wilson. These include housing units under construction by housebuilder Barratt Redrow in Norwich, where Kennedy Wilson is now leasing the first phase of completed homes, and units by Miller Homes in Stevenage, which is expected to deliver its first completed houses in the second quarter.

Kennedy Wilson will manage the JV and said it has an active potential pipeline totalling more than £360M across 1,100 units, with the capacity to reach 4,000 units at full capital deployment.

“Investing into the UK single-family housing sector aligns well with our broader real estate strategy, to undertake scalable investments into high quality assets with growing cash flows,” CPP Investments Head of European Real Estate Tom Jackson said in a statement.

“The structural challenges facing institutionally managed rental housing in the UK provides a clear investment rationale to enter the market and leverage our deep experience in the sector,” Kennedy Wilson Europe President Mike Pegler added. “We are actively seeking opportunities to grow our portfolio, which offers substantial scalability potential in the UK, driving consistent risk adjusted returns in this high-conviction subsector.”

CPP Investments manages the fund for the Canada Pension Plan and is headquartered in Toronto. The fund totalled around £361B (646.8B Canadian dollars) as of 30 June.