Investors are forecast to invest £45bn in UK living sectors in the next five years.
Knight Frank’s UK Living Sectors Investor Survey included the responses of 50 leading institutional investors who have a combined total of more than £76bn of living sector assets under management.
The survey found 71% of respondents expect total investment into living sectors to have “significantly increased” between now and 2028.
At present, just 21% of the survey’s respondents invest across the three primary living sectors of build-to-rent, senior housing and student property but the firm is expecting this number to rise to 52% by 2028.
BTR and PBSA are expected to remain central to investors’ strategies over that time, but senior housing and single-family rental are expected to see the largest growth.
Some 67% of investors said they plan to enter the senior market within the next five years, up from 40% who are currently investing, while 71% said they want to be active in the single-family rental market, up from 45% currently.
Among the challenges currently affecting the sector, 68% said the biggest proved to be the concerns about potential new regulations.
The cost of finance is another challenge, according to 62%, while 57% said it was planning issues, and 58% stated rising operational costs a challenge.
Half the respondents also found the availability of operational stock a challenge, and 42% also found fire safety requirements a challenge.
Access to the debt market is a priority for investors, with 71% indicating its importance in their investment strategy. As UK inflation eases and interest rate expectations decline, the cost of debt is expected to decrease, resulting in increased transactional activity levels.
Survey responses indicate 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.
ESG considerations continue to guide investor decisions, with 36% of respondents indicating that sustainability will significantly influence their investment strategy in the next three to five years.
Additionally, 95% of respondents believe that ESG credentials will create a value premium for their assets, suggesting their standards are becoming higher to ensure the viability and liquidity of their investments.
James Mannix, global head of living sectors at Knight Frank, said: “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.”
“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.”
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