The sub-sectors of the UK’s operational real estate – purpose-built student accommodation (PBSA), Build to Rent (BTR) and retirement living (RL) – are at different stages of maturity. Here we take a closer look at Savills analysis of each in turn.
housing – at full maturity?
The purpose-built student accommodation
(PBSA) sector is the most mature and liquid of the operational real estate
markets, worth £51.2 billion today, Savills estimates.
Brexit concerns are weighing on activity.
Investors placed £3.1 billion in UK PBSA in 2018, 19% down on 2017, but the
price per student bed remains high, at £90,000. Some 35,000 beds are expected
to trade this year, with a total value of £3.5 billion.
Total stock levels stand at 640,000 beds,
against a total student population which has grown 9.7% over the past five
years to around 1,844,500, despite Brexit concerns and competition from
apprenticeships. EU students represent only 7% of student numbers, and recent
rhetoric on immigration suggests the potential for demand from places such as
the USA, China and India could mitigate any fall in EU student demand.
Portfolio consolidation over the past five
years means that the sector is dominated by a few specialist players. With
parts of the UK PBSA market looking fully supplied, Savills expects to see
larger investors turn their attention to less mature markets across mainland
Europe, such as Italy, Spain and Portugal, where demand is expected to be
fuelled by growing numbers of students choosing to live away from home.
to Rent – huge growth potential
Build to rent (BTR) is a much newer sector,
with enormous growth potential and many opportunities for new entrants.
Currently valued at £9.6 billion, Savills projects it will be worth almost £550
billion at maturity, providing homes for over 1.7 million households.
The current value is less than 1% of the
total of privately rented housing in the UK, which Savills research puts at
£1.5 trillion. The majority of this value is owned by individual buy to let
landlords, a sector coming under pressure from recent changes to tax and
Large-scale, institutional investors have
only begun to make their mark on the sector over the past few years, Savills
says. Despite similarities between PBSA and BTR, relatively few investors are
active across both sectors, so there is huge opportunity for crossover, Savills
notes. Goldman Sachs, Legal & General, M&G, Greystar, and Aberdeen
Standard are among the few to have invested in both.
Allen, Head of Savills Operational Capital Markets, explains:
the similar challenges in development and management, we would expect to see
more investors expanding their capabilities to cover the full spectrum of
operational residential assets. Student housing investors have the potential to
extend their brands into build to rent and use a strong track record in a very
established sector to secure favourable finance terms to maximise opportunities
in a newer, less mature sector.”
living – housing an ageing population
Retirement living is also expected to
expand rapidly, both as a tenure and asset class. Institutions and REITs are
already active in the care home market, but the scale of activity is growing
rapidly. A market for retirement housing investment is now emerging, worth £120
The bulk of the existing 730,000 retirement
housing units across the UK is sheltered housing for social rent, built using
grant funding in the 1970s and 80s. Much of the balance is made up of owner-occupied
homes, built by specialised housebuilders such as McCarthy & Stone, who
have recently started to offer rental options within their developments.
Woollam, Head of Savills Healthcare, explains:
are still being written across this sector and a more investible market is
beginning to emerge. Broad demographics, and an ageing population with vast
stores of housing wealth, will underpin demand for well-managed, tailor-made
Accounting just for today’s over-75
population, Savills anticipates that the retirement living sector could grow to
1.7 million homes at full maturity. This is an increase of 138% over current
stock. Accounting for the tenure of this additional stock, the UK’s retirement
housing sector could more than double in value to £260 billion at full
To put this figure into context, Savills
has calculated the value of housing owned and occupied by the over 65s to be
more than £1.6 trillion.