Institutional investors expect holistic ‘beds for rent’ asset class to emerge within five years

Institutional investors predict the merging of an inter-related group of residential segments – student accommodation, PRS, serviced apartments and retirement living into one combined asset class within the next five years, as the UK follows the US approach towards the ‘beds for rent’ sector.

In a survey, commissioned by Investec Structured Property Finance, nine out of 10 respondents (91%) expect a blended approach will be the new norm within five years. The shift is driven by structural trends influencing home ownership numbers, the growing maturity of the component parts of the ‘beds for rent’ asset classes as well as the attraction of the low but stable income characteristics provided.

The global survey – named Future Living: How global investors will transform UK beds for rent – comprised more than 50 institutional investors, representing £338bn in global assets under management, commissioned by Investec Structured Property Finance. The report concludes that the complementary use classes could support a single return target and give investors access to strong and sustainable income.

Further survey highlights include:

  • one-third of investors are considering increasing activity across ‘beds for rent’ asset classes – and all but PRS could experience a three-fold uplift;
  • over half of investors (56%) see the retirement living sector as the most appealing asset class over the next 10 years;
  • Political uncertainty and polarisation between London and the rest of UK represent the biggest challenges to growth, the survey found;
  • 85% of investors expect a greater synchronicity of yields in the ‘beds for rent’ sector in the next five years;
  • 6 out of 10 investors highlighted the UK’s cultural focus on home ownership as impacting the sector’s maturity; and
  • student accommodation is the only asset class investors say is more mature in the UK (35%) than in the US (28%) as it’s already heavily institutionalised.

Mark Bladon, head of living at Investec Structured Property Finance, explains:

“The UK beds for rent sector is at a tipping point, which offers a real opportunity for the industry to respond and adapt to long-term structural changes that will help the UK catch up with the US market. Investec has been lending in this sector since 2012 and we are witnessing first-hand the way living in this country is changing. For example, ‘Generation Rent’ don’t see home ownership as a necessary and achievable goal compared with their parents and therefore may rent for most of their lives.

“Institutional investment in these specific areas and the wider ‘beds for rent’ market is on the rise, including investing in blended schemes similar to those seen across the Atlantic. The majority of investors are positive despite the negative impact of several macro-economic obstacles, particularly the political uncertainty around which shows the strength of the UK market and the opportunity it presents.”

Retirement living is an example of an asset class sheltered from macro-economic factors and currently underdeveloped in the UK, which is why more than half of the investors surveyed (56%) felt that retirement living will be particularly appealing over the next 10 years – more than student accommodation (43%) and PRS (44%).

james.wallace@realassetmedia.com