In an examination of how these emerging residential sectors will move over the next five years, Knight Frank has undertaken a survey of 43 leading investors in residential investment, the largest survey of its kind and represents a combined £32bn of investment.
The results of the survey are instructive in highlighting how and where the sectors are set to grow in the medium term, as well as outlining some of the expectations around pricing.
More than one-third of respondents (35%) expect to be active across all three sectors in 2024, up from 13% today. In addition, 70% expect to be active in two sectors, up from 40% today. Knight Frank said this forecast echoes its expectations for increased diversification within residential, with investors spreading their exposure across age groups.
James Mannix, joint head of residential development and investment at Knight Frank, explains:
“The drivers of each sector are relatively distinct, with student accommodation linked to the expanding tertiary education sector, PRS responding to the massive shifts in tenure seen in the UK over the last two decades, and the underlying need for homes in many key areas across the country, while the senior living market is underpinned by the sharply ageing population and the need for age-appropriate housing that offers elements of care.
Further survey highlights:
- When asked which sector would outperform in 2019, Knight Frank’s survey respondents suggested that investment-grade PRS would narrowly beat student accommodation to the post;
- When survey respondents were asked to identify locations which would outperform over the next five years, London and Bristol emerge as key opportunity areas across all three sectors. This suggests an overlap of the different drivers for each sector to provide a favourable investment environment – from strong student demand, large-scale city regeneration and development as well as strong employment conditions, and finally a lack of senior living units;
- Birmingham is the best opportunity for PRS by quite some margin, according to respondents, driven by regeneration and infrastructure improvements;
- When asked about future rental growth, respondents expect annual rental growth in London Student Accommodation to be 3.2%, and 2.4% in the regions over the next five years;
- Investors in the PRS sector also expect average annual rental growth in London (2.9%) to be stronger than that of the regions (2.6%) over the same period; and
- Senior living rental growth is expected to be stronger again, at 3.5% in London and 3.2% in the regions, according to respondents.
When assessing where investment is coming from, Knight Frank cites the US, Canada and the UK as counties from which they have seen the most activity in recent years.