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2018 UK Market Outlook: Residential Investment

by | Feb 28, 2018

There’s been a significant increase in investment into the UK Build to Rent (BtR) in 2017. But what’s the outlook for 2018 and beyond?

In previous blogs I’ve written about the significant increase in BtR investment in 2017, and the changing distribution and type of that investment.

But there’s more. The UK’s BtR sector is still in its the initial growth phase and will continue to undergo significant expansion. Investment volumes are currently about the same as the Purpose-Built Student Accommodation (PBSA) sector achieved in 2014. The PBSA sector recorded £4.6bn of investment in 2017, which is perhaps suggestive or the rate of growth we might see in the BtR sector too.

Given the growth trajectory of BtR and the demand backdrop (according to Experian, there are approximately 12 million private tenants in the UK in 2016 compared with the 1.4m undergraduates which HESA identified in 2015/16]), we speculate that investment volumes could match the PBSA sector by 2020 and potentially reach £10bn by 2023. That volume would be achieved if the growth rate experienced in 2016-17 (33%) continues for the next 5 years.

In addition, the US market provides an indication of the potential size of long term investment volumes in the UK. There was £103bn ($145bn) of investment in the US multifamily market in 2017, 13% higher than US office investment last year. The US and UK markets are not the same in many respects. But that relative market size might suggest something for the UK. Applying the same metrics to the UK market, where office investment totaled £27.2bn in 2017, implies that annual UK BtR investment volumes have the potential to reach £30bn.

With £1.4bn of opportunities currently under offer, there is already a strong investment foundation for 2018. In addition, we estimate there is currently £31bn of institutional capital targeting the UK residential sector. Overall, confidence in the UK market continues to grow, and as the investment market evolves increasing liquidity is likely.

The main trends witnessed in 2017 are likely to continue into 2018. Land deals and forward funding transactions will dominate the market as investors and operators strive to build their brand and provide a bespoke rental product to the market. There will also be a greater focus on mid-market products to meet the significant demand there. M&A activity will also increase as investors aim to scale up rapidly. Finally, investment will continue to spread across the UK as investors become increasingly comfortable with, and move into, new markets.

There’s more on our outlook for 2018 for BtR, residential and student accommodation in our 2018 UK Market Outlook, which my colleague Miles Gibson blogged about here.

 

Map 1: Schemes predicted to launch in 2018

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