Assets and regions
Living sectors keep leading the way
With the UK housing market currently gripped by a supply and demand imbalance, it’s no surprise that respondents believe private rented and residential sectors will see the most investment growth over the next year. As well as rising interest rates, and a general shortage of properties making it harder to get on the property ladder, there’s also the loss of the first-time buyer funding – which both the Conservative and Labour parties are discussing in their manifestoes.
On top of this, there are buy-to-let landlords with a small number of properties who – due to enhanced ESG requirements and being unable to deduct high interest rates – are deciding to exit the market.
Investor attractiveness in the living sectors is boosted by demographic shifts and healthy fundamentals, resulting in double digit rental growth achieved consecutively across a two-year period.
Amidst economic and construction challenges, in the UK the build-to-rent market has seen 11% growth, with a further 100,000 units in the planning.
Source: British Property Federation
Which property sectors will see most investment growth over the next 12 months?
Private rented sector/residential
Student housing
Industrial/logistics
Healthcare e.g care homes
Serviced offices/co-working
Senior living excluding care homes
In the future, we could, and probably should, see a movement towards a ‘post-student’ approach, where large developments not unlike student accommodation are built or repurposed with renters in mind – with schools, shops, restaurants and all the necessary facilities to create comfortable communities.
Our respondents reflect market sentiment that the logistics market has settled following a boom. Still in our top three, it has fallen by 8% since last year. Technology, AI and ESG requirements will drive occupier demand in the market. To secure supply chains, nearshoring has continued at pace, having a bearing on these assets.
London a safe haven for investors
The UK region expected to attract the most commercial and residential property investment is, unsurprisingly, London, demonstrating again a flight to quality during economic uncertainty. London is considered a safe haven and a globally resilient place to invest, with PE and overseas investors being drawn to the city, over 40% of all inbound investment flows into the capital. Hybrid working is yet to truly settle down, and factors such as split of private to public sector workers in different regions will impact commercial property investment.
Many of our respondents also commented on the importance of transport links to London when considering investments. We have seen percentage increases for the south east and the midlands, the latter hot on the heels of the announcement that the HS2 leg to that region would be completed.
The UK regions predicted to attract the most commercial property investment
London
North West
South East
Scotland
West Midlands
East Midlands
Office and retail challenges
Meanwhile, there is ongoing concern around office and retail spaces, with 25% and 30% of respondents respectively expecting these property sectors to see the highest levels of negative growth. Challenges exist in the non-prime office market, with occupiers demanding best-in-class premises. Among many factors including environmental, and high capital expenditure to fit out buildings to the desired specifications, this is a blocker. In many cases, some of these older office blocks are simply not fit for purpose and as such are being re-positioned and re-priced to convert to residential.
Which two property sectors if any do you anticipate will see the highest level of negative growth in next 12 months?
Retail
Office