New research published by Knight Frank has found that investors in the UK’s residential investment sectors (student, senior living and PRS) are seeking to increase their exposure significantly over the next five years.
A survey by the global property consultancy of the top 40 leading investors – who together have already committed a combined investment value of £62 billion across the sectors – found that respondents plan to invest an additional £42 billion by 2025.
This would represent a 68% increase on current capital committed, and demonstrates the growing confidence investors have in the UK’s student, senior living and PRS markets. Next year alone, the survey respondents expect to have invested an additional £10 billion across the sectors.
James Mannix, Head of Residential Development & Investment at Knight Frank said: “Covid-19 and lockdown have done little to dampen the appetites of investors, and our view is that the current crisis will likely act as a catalyst which will see an increased level of capital committed. Not only are current players committing to invest more, but new entrants are also keen to increase their exposure. Combined, the student, senior living and PRS markets are extremely resilient, especially in times of economic stress, and we’re seeing this play out in the long-term investment intentions of the country’s biggest funds, developers and operators.”
The survey also pointed towards a trend of broadening portfolio diversity amongst investors. Of the respondents surveyed, only 13% currently invest across all three residential investment asset classes – student, senior living and PRS. This is set to rise to 38% by 2024.
The myriad reasons underpinning the outlook for investment into income-producing residential markets include a search for diversification, finding value in the granularity of occupiers that comes with individual units, as well as wider demographic and tenure shifts which are taking place across the UK.
When asked whether the residential investment sector will outperform all other real estate sectors in 2021, 44% of respondents said yes. This rises to 70% who think residential investments will be the top performer over the next five years. With this in mind, investors are taking a long-term view, upping their exposure and increasing their firm-wide activity in residential investment markets.
Mannix commented: “Investors – whether they are currently predominantly active in the student, senior living or PRS market – are starting to see the value of becoming exposed to other similar asset classes, and are broadening their overall exposure in search of portfolio diversity.”
Oliver Knight, Head of Residential Development Research at Knight Frank added: “The survey results echo our expectations for increased diversification within the residential investment market, with investors spreading their exposure across age groups. While there are significant differences in market drivers, there are synergies – particularly with regards to construction and operations – which makes the decision to move across sectors more appealing.”
Knight Frank also asked the survey respondents to rank those cities that they believed would outperform the market. London, Bristol and Edinburgh were ranked the top three.