Investors poised to spend £45bn on UK living sector assets

New data from Knight Frank reveals that investors plan to significantly increase their exposure in the living sector.

Knight Frank’s latest UK Living Sectors Investor Survey forcasts £45bn set to enter the UK living sector | BTR News

New data from global property consultancy Knight Frank shows that investors plan to significantly increase their exposure in the UK living sector. Over the next five years, Knight Frank forecasts an additional £45bn is to enter the market.

The new data comes from Knight Frank’s latest UK Living Sectors Investor Survey, which includes responses from 50 leading institutional investors who have a combined total of over £76bn worth of living sectors assets under management.

The survey found that 21% of respondents invest across the three primary living sectors – Build to Rent, seniors housing and student property. Knight Frank expects this number to rise to 52% by 2028. The survey also revealed that 71% of respondents expect total investment into living sectors to have ‘significantly increased’ between now and 2028.

“Over the past five years the living sectors have experienced a steady rise in investment, from less than £8bn in 2018 to more than £15bn last year.

“Our survey points to further growth over the medium term. There is a compelling case for investing in assets that benefit from changing ways of living and which provide strong counter-cyclical features and inflation-matching characteristics that can help investors achieve consistent returns.”

Oliver Knight, Head of Residential Research, Knight Frank

Over the next five years, multifamily and PBSA are expected to remain central to investors’ strategies, but single-family rental and seniors housing are expected to see the largest growth.

Some 67% of investors said they plan to enter the senior’s market within the next five years, up from 40% who are currently investing. 71% said they want to be active in the single-family rental market, up from 45% currently.

The barriers and challenges currently hindering investment include the cost of finance (62%), planning issues (57%), and the availability of operational stock (50%). Survey respondents expressed concerns about potential new regulations (68%) and affordability pressures faced by tenants (60%). Rising operational costs (58%), fire safety requirements (42%), and sector-specific challenges add to the complexity.

“The UK’s living sectors have experienced a surge in investor enthusiasm and unprecedented levels of growth over the past five years. Established players are expanding aggressively, and global newcomers are seizing opportunities.

“That said, the growth of the sector hasn’t been without challenges – notably surging debt costs and regulatory barriers. But the future of the living sectors is bright: interest rates will peak, and fresh capital will flood the market in Q4 2023. Equally, untapped equity hints at a transactional resurgence.”

James Mannix, Global Head of Living Sectors, Knight Frank

The survey highlights that access to the debt market is a priority for investors – 71% indicated its importance in their investment strategy. As UK inflation eases and interest rate expectations decline, the cost of debt is expected to decrease, and as a result, increased transactional activity levels are expected.

Responses indicated that 36% of investors plan to increase their requirement for debt in the coming year. Of those, 56% plan to use debt for new development, and 44% plan to use it for acquisitions.

“This survey confirms that the cost of debt is at the forefront of investors’ minds, and understandably so. But at the same time, lender appetite for funding the living sectors has never been stronger and with a reduction in deal volumes in 2023, lenders are beginning to reduce margins in order to win funding mandates in these sectors. Now is the time to capitalise on this liquidity and optionality in the debt market.”

Lisa Attenborough, Head of Debt Advisory, Knight Frank

The survey also found that investor decisions continue to be guided by Environmental, Social, and Governance (ESG) considerations. Over the next three to five years, sustainability will significantly influence 36% of respondents’ investment strategies.

Investors standards are also rising to ensure the future viability and liquidity of their investments, as 95% believe that ESG credentials will create a value premium for their assets.

“This is a unique moment for investors to acquire living sector assets at competitive prices, while reasonable inflation growth over the next few years will act as a tailwind for savvy investors, enhancing the real income generated from assets and bolstering long-term investment returns.”

James Mannix, Global Head of Living Sectors, Knight Frank