Savills: UK operational ‘beds’ sector will blossom to £880 billion by full maturity

The market for purpose-built student accommodation (PBSA), Build to Rent (BTR) and retirement living (RL) combined will be worth £880 billion at full maturity, almost four times its current £223 billion valuation, Savills estimates.

Savills – in a new report entitled UK Operational Real Estate: The Sky’s The Limit? – says the market for residential assets owned and operated by large-scale, professional investors is still in its early stages of development in the UK and represents a huge growth opportunity both for investors and developers.

Lawrence Bowles, Savills research analyst, explains:

“Common to all these sectors is the recognition that investing in where people live has great potential for investors, particularly those seeking long term income streams. The fundamental demographic and economic changes supporting these sectors are difficult for investors and developers to ignore. Institutional interest will continue to grow as these asset classes mature and can increasingly demonstrate their track record.”

Many aspects of operational real estate are still emerging, and there are challenges still to face, says Savills, which cites the PBSA sector as the most mature, followed by BTR and then RL.

Lawrence Bowles, Savills research analyst, added:

“As a more mature sector, opportunities for growth in PBSA will likely be by outperforming the competition on brand differentiation, rather than through innovation. Organic growth will largely be limited to growth in the full-time student population, rather than increasing penetration.

“Capacity for new entrants is limited, with firms such as Unite, UPP and GCP REIT maintaining their hold on the majority of the market. We estimate the UK’s PBSA sector is worth just over £50 billion.

“BTR is still evolving. There is plenty of space for new entrants, and the competitive landscape is likely to look very different in ten years’ time. Opportunities for growth in BTR will be driven by developing new stock and delivering innovative new products and tenure structures. While the BTR stock completed to date is worth less than £10 billion, at full maturity, we estimate the BTR sector could grow to £550 billion in today’s values.

“Institutions have invested in UK care homes for many years, but the scale of that activity is growing rapidly. By contrast, retirement housing has been a slower burn, with institutions only recently entering the sector. Retirement living (care home and retirement housing) is, therefore, an emerging sector where many of the rules are still being written.”

“The scale of investment in these asset classes is growing. Whether it’s the recapitalisation of the Chapter student housing portfolio, Goldman Sachs’ £2 billion investment in retirement housing developer Riverstone, or Greystar’s recently launched £2 billion BTR fund, investors are increasingly confident pouring large amounts of capital into operational real estate, often across multiple asset classes.”

Tomorrow, we take a closer look at Savills’ analysis of these three sectors in turn.

james.wallace@realassetmedia.com