Investors plan to deploy an average of £248m into the living sector over the next 12 months, more than double the £113m cited in 2021, Investec Real Estate’s third Future Living report has revealed.
According to the report, the student accommodation sector saw the biggest shift in investor appetite, rising from tenth place to first in terms of investor appeal in just two years – 59% of respondents were optimistic about student accommodation in 2023, compared with 27% in 2021.
However, higher interest rates were forcing investors to rethink their debt strategies.
Almost three-quarters (71%) of respondents said it would be more difficult to access senior debt over the next 12 months, and 59% said they would be more likely to undertake a real estate transaction without leverage compared with a year ago.
Almost half (48%) of investors planned to decrease their allocation of investment into offices over the next 12 months, and 40% planned to decrease their allocation to retail.
Jonathan Long, head of corporate lending at Investec Real Estate, said: “The UK living sector has been our strongest conviction call over the past decade and it is enjoying a prolonged period of global institutional investor support.
“Whilst the funding landscape has been turned upside down by higher rates and macroeconomic pressures, structural shifts accelerated by Covid-19 are redrawing the commercial real estate map and positioning living firmly in the mainstream.
“Investors have been drawn to both the strong rental growth prospects and the valuation resilience.”
He continued: “Comparing the findings from our third Future Living report with its previous iterations has enabled us to map a number of the trends driving investor decision making.
“These latest insights align with what we continue to see as a business with investors looking past the near-term market volatility at the Living sector’s compelling fundamentals.”
Investor attitudes towards sustainability remained complex, with 77% of respondents saying that recent market volatility and economic uncertainty relegated sustainability down investor and corporate agendas.
However, 78% of respondents were likely to seek sustainability-linked financing over the next 12 months.
Despite talk of ‘Levelling Up’, London was still by far the most popular location for investment in living, although 79% of investors were allocating more capital outside London than 12 months ago.
The only asset class where London was topped was single family rental, where respondents favoured Manchester.
