Rental revolution: investment into UK residential to soar 68% to £146bn by 2025

This combined value includes investment into purpose-built student accommodation (including university-run and private PBSA), institutional grade PRS investments (including co-living, Built-to-Rent flatted schemes and single-family housing) and purpose-built senior living rental accommodation.

The data comes from Knight Frank’s inaugural Residential Investment report, which looks at the sector as a whole for the first time. This comparison shows that over the next five years the PRS sector is set to leapfrog student accommodation, in terms of size, with the sum of capital invested and committed in the investment-grade private rented sector (forecast to be £75bn) rising to more than the total value of the student accommodation sector (forecast to be £65bn).

Back in 2015, the combined values of student accommodation, PRS – which includes capital invested as well as committed, and Senior Living rental, was around £46.6 billion. Today, that figure has nearly doubled to £87 billion, according to Knight Frank calculations, with the biggest growth seen in the PRS, where total investment and capital committed has more than doubled in size.

To put this in context, IPF data suggests that the UK Retail sector is currently valued at £351 billion, while the office market is worth £277 billion. The industrial sector is worth £266 billion. Yet the total investable assets in these sectors stands at £175 billion, £215 billion and £69 billion respectively, meaning residential investment has overtaken industrial on a like-for-like basis.

In addition, the total value of all residential property in the UK is worth around £7 trillion, which means that a relatively modest transfer of rental accommodation from private landlords to purpose-built student accommodation, PRS or senior living would result in a large rise in the size of the sector.

By 2025, the UK PRS and senior living markets will be more established, underpinned by a broad base of investors keen to tap into an asset class which is closely linked to student, employment and population fundamentals across the UK.

The myriad reasons for the growth of investment into income-producing residential markets include a search for diversification, finding value in the granularity of occupiers that comes with individual units, demographic and tenure shifts and a housing policy landscape in the UK that is now embracing diversity of tenure.

Within the three sectors that make up residential investment, the fundamentals underpinning the markets are also varied, from educational factors in the student accommodation market to housing affordability and employee mobility in the PRS and the ageing population and limited care options in the senior living sector.

James Mannix, joint head of residential development and investment at Knight Frank, explains:

“The growth of these sectors is mainly down to investor appetite for diversification, the granularity of occupiers that comes with individual units, demographic and tenure shifts and a housing policy landscape in the UK that is now embracing diversity of tenure. While there are significant differences in market drivers for each sector, there are key synergies in construction and operations, making a move across sectors even more appealing for investors.”

In tomorrow’s follow-up, we examine the highlights of Knight Frank’s survey of 43 leading investors in residential investment.

james.wallace@realassetmedia.com