London and Bristol emerge as key opportunity areas

UK To Enjoy Fast Growing Rental Investment Revolution Over Next Five Years

24.06.19

According to Knight Frank's latest market research, investment into the UK Student Accommodations (PBSA), investment-grade private rented sector (PRS) and senior living rental sectors is expected to reach £146bn ($185bn) by 2025, rising from £87.3bn ($110bn) in 2019.

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 or $95b) rising to more than the total value of the Student Accommodation sector (forecast to be £65bn or $82bn).

Knight Frank also surveyed 43 leading investors, with a combined £32bn ($40bn) already invested across Student Accommodation, PRS and Senior Living Rental.

Other key findings include:

35% of respondents expect to be active across all three sectors (PRS, Student Accommodation and senior living rental) in 2024, up from 13% today. In addition, 70% expect to be active in two sectors, up from 40% today.

67% intend to increase holdings in residential investments over the next five years

When asked which sector would outperform in 2019, our survey respondents suggested that investment-grade PRS would narrowly beat Student Accommodation to the post.

Top UK cities for rental assets

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 favorable 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.

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, the heads of our three specialist teams at Knight Frank cited the USA, Canada and the UK as counties from which they have seen the most activity in recent years.

James Mannix, Joint Head of Residential Development & Investment at Knight Frank commented, "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".

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