UK: Knight Frank’s 2022 residential investment report predicts a 65 per cent increase in investment in to UK residential assets, encompassing student housing, coliving, multifamily and single-family rental, and senior living.
The report says residential accounted for 15 per cent of all UK real estate investment by value last year and 22 per cent in 2020, only behind offices and a resurgent logistics sector. Ten years ago, residential accounted for just eight per cent of all acquisition activity.
Figures for Q1 2022 suggest that investor demand remains strong. Some £2.9 billion has been committed in the first three months of the year, which is 25 per cent above the level achieved during the same period last year.
Demand is driven by a combination of strong structurally supportive market dynamics, an evolving service-focussed product, as well as an expanding and more discerning occupier base. Knight Frank says Covid-19 has transformed the way global institutional investors look at real estate. The residential investment sector has proven resilient by delivering secure income in uncertain economic conditions.
As well as existing investors looking to build scale, activity is being fuelled by a deepening pool of capital looking to target residential. Some 23 per cent of investment in the BTR market last year was from new entrants to the UK market, while for senior living that figure was 48 per cent.
Based on the level of investor demand – and supported by the survey of 54 leading investors who, combined, currently account for £76 billion in residential assets under management across the UK – further growth is expected. Some 80 per cent of investors are expecting to “significantly increase” their exposure into residential over the next five years.
In the short term, the survey suggests that residential investment volumes will top a record £16.5 billion in 2022, up from £10.2 billion in 2021, according to Knight Frank analysis. In total, an additional £75 billion has been earmarked to deploy across residential investment sectors over the next five years, equivalent to a doubling of their current committed capital.
There remain challenges for investors to achieve their ambitions. A lack of operational stock was the most cited barrier for increasing investment, followed by competition from other investors, and the availability of development and funding opportunities. Currently, just 42 per cent of respondents said they are targeting land deals, with the majority looking for income producing assets, or forward funding opportunities.
In the short-term, increasing construction and operational costs, rising land values and fire safety were flagged as the top three most immediate concerns.
Longer-term, ESG will shape investment. Some 38 per cent of respondents to our survey believe sustainability considerations will be the key influence determining investment strategy over the next three to five years. The remaining 62 per cent said it would be somewhat influential.
