Beds for rent: The golden age
Future Living II report Contents
3 Introduction
5 Executive summary
7 Institutional allocation and the impact of Covid-19
Build-to-rent shines and student accommodation comes 11 under pressure with the end of Covid-19 in sight
Retirement & co-living: community spirit igniting 15 once nascent sectors
17 The future of ‘beds for rent’
20 Conclusion
21 Get in touch with the team Introduction
When we launched our first Future appealing real estate investment supporters of these use classes, Living report in 2019, it was based characteristic being the fact it is exciting to be at the heart of on the idea that a new real estate that everyone needs a roof over this shift. asset class was emerging in their head. the United Kingdom that would As the United Kingdom’s recovery hold a powerful appeal for global From our poll of over 50 global from Covid-19 picks up pace, institutional investors. institutional investors, we can I expect to see an appetite for now see that they are targeting nationwide investment in ‘Living’ I’m happy to say that in our the ‘Living’, sectors en masse strategies and a new set of metrics second Future Living report, we at the same time as many are taking hold, with the winners have been proved correct. Even exiting traditional property asset identified for their thoughtful design, a dramatic turn of world events classes. This demonstrates that development, asset management didn’t dissuade our view that what the pandemic set in motion some capabilities and customer care. are now commonly known as the seismic changes to the real ‘Living’, or ‘beds for rent’ as they estate market. At Investec, we made a call on the are also known, strategies, a term ‘beds for rent’ sector a number of to encompass multiclass private With many of the same investment years ago, seeing our loan book residential property for rent in the characteristics in their favour, such exposure increasingly weighted UK – private rented sector, student as demographics, strong demand, towards this part of the market. accommodation, retirement living, shortage of supply and the need Encouragingly, the findings of our co-living and serviced apartments, for skilled management, we believe research point to investors making would soar in popularity. we will see closer alignment in the same bet. investment performance in the The Covid-19 pandemic has ‘Living’ world. emphasised what has been increasingly obvious to investors in Quite simply, the ‘beds for rent’ the last few years, with the most sectors are now core to investors’ Head of Real Estate, Investec strategies and, as long-standing
3
Executive summary
Covid-19 has transformed the way global institutional investors look at real estate, with the ‘beds for rent’ sector emerging as the big winner. In the minds of investors, the change is permanent, as they look to grow their investment in the ‘Living’ world throughout the decade.
Mark Bladon, Head of Real Estate, Investec, said: “Our forecast in the first Investec Future Living report – that investors would increasingly view ‘Living’ as a defined asset class – has been confirmed. For many, it is now core to their strategies.”
Investors who bought into the ‘beds Respondents comprised pension for rent’ sector over the last three funds, hedge funds, private equity, years have seen strong returns mutual funds, venture capital and despite the Covid-19 pandemic. The sovereign wealth funds. sector looks set for an even better performance as demand continues We also conducted interviews with to grow. six of Europe’s most influential players in the ‘Living’ sector: fund 52 Build-to-rent (BTR), defined as management giant M&G, alternative new build developments designed investments specialists Harrison specifically for renting, has been Street, global consultancy JLL, GLOBAL INSTITUTIONAL key to this success, with retirement UK real estate private equity fund INVESTORS living also growing rapidly in manager Moorfield, multi-family influence since we worked with FTI specialists Long Harbour and BTR Consulting to first publish a poll owner and developer Get Living. of 50 institutional investors in the £514 billion ‘Living’ sector in 2019. They were unanimous in their view that ‘beds for rent’ has proved its Starting in March this year, we resilience during the last 18 months IN ASSETS UNDER spoke to 52 global institutional and will emerge stronger than ever MANAGEMENT investors representing £514 billion having learned valuable lessons in assets under management. from the pandemic.
Within the next five years, investment strategies encompassing student, PRS, serviced apartments and retirement living will be common in the UK
38% 50% 10%
Strongly agree Slightly agree Slightly disagree Strongly disagree
5 Beds for Rent: The Golden Age Among our key findings from global investors The latter point is perhaps a in 2021 are: function of the timing of the polling, which was carried out before BTR has become core to strategies, with 58% of investors saying the vaccine rollout had gathered they currently invest in the sector and will continue to do so. momentum. It also needs to be Another 17% of investors are considering investing. viewed in the context of the sector’s increasing maturity versus the other Retirement living has soared in popularity, with 33% currently ‘Living’ sectors and therefore the investing compared with 20% in 2019. smaller relative upside available to investors. Whilst purpose built student accommodation has become more appealing to investors, with 40% currently investing compared As the ‘Living’ sector grows in with 33% in 2019, current uncertainty is impacting on its longer maturity, there are also perceived term appeal, with optimism for the next five years for student barriers on pricing and the returns accommodation (27%) almost halving since 2019 (48%). available from a more affordable product, as well as economic uncertainty and availability of stock.
But given the economic turmoil the world has suffered over the last year and a half, the overall picture is healthy, with ‘beds for rent’ far outpacing office, retail and hotels in prospects for the next 10 years.
Reflecting a growing consensus that the ‘beds’ asset classes will coalesce in performance and management, 88% agree that investment strategies encompassing student, BTR, serviced apartments and retirement living will be common in the UK by 2026.
6 Beds for Rent: The Golden Age Institutional allocation and the impact of Covid-19
“Ultimately investors want to In recent years, particularly in already an ailing retail sector, with take as little risk as possible the current low-interest-rate knock-on effects for where people and achieve as high a return environment, the demand for choose to live. as possible. They want safe, exposure to real estate as part of secure, inflation-linked income a diversified portfolio has grown. At the same time, the search for returns, even more so now yield continues to be a defining than pre-Covid and before the However, a defining feature characteristic for a large proportion Global Financial Crisis in 2008, of Covid-19 has been the of real estate investors. “Ultimately especially real estate investors” unprecedented disruption to what investors want to take as little risk were considered the traditional real as possible and achieve as high a Charles Ferguson-Davie, estate sectors, which has translated return as possible. They want safe, CIO at Moorfield into a major shift in investors’ secure, inflation-linked income current and future attitudes to real returns, even more so now than estate allocation. pre-Covid and before the Global Financial Crisis in 2008, especially The acceleration of structural trends real estate investors”, said Charles led by the move to online has put Ferguson-Davie, CIO at Moorfield. even more pressure on what was
Covid-19 has permanently altered the UK beds-for-rent outlook
25% 40% 31% 4%
Strongly agree Slightly agree Slightly disagree Strongly disagree
7 Beds for Rent: The Golden Age While the ‘beds for rent’ sector was Any questions that this is merely a becoming an increasingly prominent temporary, Covid-19 led shift are 85% asset class before the pandemic, dispelled by the research. 85% of the defensive characteristics it has investors are expecting to either OF INVESTORS ARE displayed during the last year have increase or maintain their portfolio EXPECTING TO EITHER turbocharged its appeal. Higher allocation towards the ‘Living’ sector rates of both occupancy and rent over the next 10 years, versus just INCREASE OR MAINTAIN collection, coupled with investors’ 58% for office and less than half for THEIR PORTFOLIO growing comfort level with exposure retail (46%). ALLOCATION TOWARDS THE to operational real estate, have ‘LIVING’ SECTOR OVER THE fundamentally changed how the Overall, investors are three times NEXT 10 YEARS sector is perceived. more likely to increase their exposure to the ‘Living’ sector in the Our research reveals that 65% same period versus the office sector of investors either agree or and almost four times more likely strongly agree that Covid-19 has versus the retail sector. permanently altered the UK ‘beds for rent’ outlook. According to JLL’s Head of Living Simon Scott, “Investment volumes Alex Greaves, Head of Residential are only going to grow. There is a at M&G, was in no doubt that this lot of focus on logistics as being was a watershed moment for the the most attractive asset class, but sector. “I’ve spent the last 10 years frankly it doesn’t offer the scale or talking to investors about the robust diversification that the ‘Living’ nature and defensive qualities of the sector offers.” residential asset classes. A further sign that the sector is “Look at what happened with the increasingly viewed as mainstream 90s and noughties crashes, and is in its risk profile. Compared now we have another crisis. We’ve with the first Future Living report, seen rent collection stats at 95% the percentage of investors that plus, which versus other asset consider the retirement living, BTR, classes speaks for itself.” co-living and serviced apartment sectors particularly risky to invest in over the next five years have all decreased.
Q13. How do you expect your portfolio allocation of each of the following use classes to change over the next 10 years? (Please select one column response for each row)
Sum: Increase + Remain the same
Office 15% 42% 42% 58%
Retail 12% 35% 54% 46%
Industrial 44% 40% 15% 85%
Distribution/Logistics 67% 27% 6% 94%
Beds for rent 42% 42% 15% 85%
Healthcare 60% 37% 4% 96%
Hotels/Leisure 27% 52% 21% 79%
Data centres 67% 29% 4% 96%
Other 17% 75% 8% 92%
Increase Remain the same Decrease
8 Beds for Rent: The Golden Age With 77% of investors citing risk as we’re only on the tip of that iceberg, “Look at what happened with the most important and influential in terms of the scale of investment the 90s and noughties crashes, criteria in their investment decision, and people reallocating from other and now we have another crisis. the prospects are strong. sectors,” said Scott. We’ve seen rent collection stats at 95% plus, which versus other BTR, in particular, has enjoyed a The prospect of rising inflation asset classes speaks for itself.” meteoric rise in the two years since looks set to further increase the the publication of our inaugural sector’s appeal. “Inflation is now Alex Greaves, Head of research, with 13% more investors more of a topic post-Covid. We Residential at M&G particularly optimistic about it over might see some inflation because the next five years (up from 35% to of the various government support 48%). “Ultimately, the professionally measures and it’s likely that central managed private rental sector is banks will let it run a little more than only going one way, and I think previously” added Ferguson-Davie.
Q3. Which of the following criteria would you consider to be IMPORTANT and INFLUENTIAL upon you overall UK real estate investment decision making? (Please select all that apply)
Risk profile 77%
Return profile 75%
Long term financial performance 62%
Stability of income 52% Potential future demand of sectors 46% (e.g. retirement living)
Valuation 44%
Potential for development 40%
Maturity of asset class 27%
Ensuring a portfolio mix of asset classes 27%
Other 2%
9 Beds for Rent: The Golden Age “Some parts of the real estate world Q5-2. Which of the following UK real estate asset classes are you particularly optimistic about over the next five years? are better suited to track inflation: the only sector where rents have (Please select all that apply) tracked inflation over the long term is residential.” 73% Distribution/logistics 41%
“The other sectors’ losses have 65% Data centres been residential’s gain” surmised Did not ask Greaves. Given that the risk and 58% Healthcare 31% return profile continues to be 48% considered the most important Industrial 24% criteria upon investors’ decision 48% Private Rented Sector making, Ferguson-Davie added a 35% 44% note of caution: “Investors currently Co-living (e.g. shared living space) 30% want to be in the ‘Living’ sectors 42% because, at present, they offer Retirement living 33% better risk/return dynamics. If that 38% Serviced apartments/aparthotels were to change, investors would 37% 35% switch. If in a post-Covid world Life Sciences Did not ask there was a political, legislative 27% Student accommodation or major societal shift, which 48% might shift the desirability of the 23% Hotels/Leisure ‘Living’ sectors, then the situation 17% 13% could change.” Office 30%
6% Retail 15%
2021 2019
10 Beds for Rent: The Golden Age Build-to-rent shines and student accommodation comes under pressure with the end of Covid-19 in sight
“Build-to-rent in the UK is still “Build-to-rent in the UK is still in its Prospects for the coming years are in its early stages, but there is a early stages, but there is a huge good too, with BTR having fared huge amount of capital support. amount of capital support. better than the office, retail, and leisure sectors during the pandemic “Investors can get a good “Investors can get a good read on when looking at the rent collection read on build-to-rent; they build-to-rent; they understand the statistics, share price performance understand the demographics, demographics, the stability of cash of the listed companies investing the stability of cash flow and flow and that their capital will be in these sectors, and the yields at that their capital will be serving serving the community, which is which assets have traded. the community, which is aligned aligned with the needs of their with the needs of their own own stakeholders.” Paul Bashir, CEO Europe at stakeholders.” alternatives real estate investment This was the view of Ailish specialist Harrison Street, said: Christian-West, Christian-West, Director of Real “There have been a lot of trends Director of Real Estate at Estate at Get Living, the UK’s top in real estate which have been Get Living owner and operator of BTR homes. influenced by Covid-19. Its East Village regeneration of the former Olympic Village in East “Build-to-rent is benefiting from London’s Stratford has been the significant tailwinds as a result, with trailblazer for so much of the BTR people becoming more focused development that has followed. on affordable homes, flexibility and amenities because they are Her views reflected those of the spending more time in their homes. global institutional investors we City centre build-to-rent is still polled, with BTR continuing to grow compelling but there is also a in appeal even from a high-water growing argument for suburban or mark of 2019. commuter build-to-rent.”
Q4-2. How would you describe your company’s investment activity in each of the following UK real estate asset classes over the next five years? (Please select one column response for each row)
Sum: Currently Investing
60% Private Rented Sector 57%
40% Student accommodation 33%
33% Serviced apartments/aparthotels 33%
33% Retirement living 20%
17% Co-living (e.g. shared living space) 20% 2021 2019
11 Beds for Rent: The Golden Age Both Christian-West and Bashir According to British Property “Throughout the pandemic, pointed to a growing sense Federation1, Molior2 and Savills3 we have had very high rental of community within BTR research, BTR development collection in BTR: 90%-plus developments during the pandemic, continued apace during 2020 with across Europe. with East Village becoming one of 53,750 BTR units completed by Q4 the banner locations for the NHS 2020, compared with 43,598 a “Lockdown has helped the ‘Clap for Carers’ phenomenon in year before. take-up of experiential activities spring 2020’s first lockdown. in build-to-rent, like yoga on the In total there were 179,835 balcony and cookery courses Bashir continued: “Throughout the BTR homes completed, under on Zoom. It has strengthened pandemic, we have had very high construction or in planning in these new communities.” rental collection in BTR: 90%-plus the fourth quarter of last year, across Europe. compared with 151,722 at the same Paul Bashir, CEO time in 2019 – a 19% rise. Harrison Street “Lockdown has helped the take-up of experiential activities in build- The rate of increase was sharpest to-rent, like yoga on the balcony in the regions, with a 28% rise and cookery courses on Zoom. in the total figure to 99,114. In It has strengthened these new London, there was also an 8% rise communities.” in completions, projects under construction and those in planning, which takes the total up to 80,721.
Q7-2. Which of these UK asset classes do you believe will be particularly appealing from an investment perspective over the next five years? (Please select all that apply)
Retirement living 60% 35%
Private rented sector 54% 37% 40% Serviced apartments /aparthotels 43%
Co-living (e.g. shared living spaces 35% 46%
31% Student accommodation 57%
None of the above 4% 2%
2021 2019
1. British Property Federation, UK build-to-rent housing supply grows in 2020 despite Covid-19, 2021 (Link) 2. Molior, BTS + BTR January 2021, 2021 (Link) 3. Savills, UK Build to Rent Market Update – Q4 2020, 2021 (Link)
12 Beds for Rent: The Golden Age Student accommodation “But student accommodation has investment hangs in the really proved itself now, with online teaching proven to be inferior to balance face-to-face, students still keen to be based away from home and a Whilst investor exposure to the significant increase in 18-and-19- student accommodation sector has year-olds on the way. The sector grown since the last Future Living will rebound quickly in 2021.” report, it is the ‘Living’ sector asset class that has come under the most Savills reported that investor pressure, as restrictions on foreign confidence started to grow again travel and in person teaching have at the end of the year off the back driven down occupancy. of the UK’s Covid-19 vaccination programme, and this has been Whilst slightly skewed by borne out in recent months, with Blackstone’s record-breaking investors including Lone Star, Patron £5.77 billion acquisition of iQ Student Capital and Ares Management, all Accommodation, investors spent buying in the sector. £5.77 billion on the sector last year, SPENT BY INVESTORS ON a 5.7% increase on 20194, with There is no doubt, though, that THE SECTOR LAST YEAR, A other new investors entering the Covid-19 has rattled some global 5.7% INCREASE ON 2019 sector during 2020 including investors. Many higher education Crosstree, Barings, Ares and establishments are persisting in Franklin Templeton. plans for online learning despite frustration among students and Harrison Street’s Bashir, a major until there is clarity on this front, investor in the student sector, said: optimism is likely to be subdued. “2020 was difficult for the student accommodation sector because operators were playing catch-up to a `point-in-time’ event.
4. Savills, Spotlight: UK Purpose-Built Student Accommodation, 2021 (Link)
13 Beds for Rent: The Golden Age This is reflected in the survey, with government stimulus, so a number example, landlords collected just student accommodation considered of commentators are questioning 42% of shopping centre rents in the “particularly appealing” by just 31% the possibility of excessive inflation, fourth quarter of last year. of respondents over the next five which could ultimately lead to an years, and 25% over the next increase in interest rates. This could There has been very little outward 10 years. further increase the appeal of ‘Beds yield movement, though, with for Rent’ as the ability to reprice yields remaining stable at 3.90% Moorfield’s Ferguson-Davie said: rents annually offers investors for prime London, 4.75% for super- “For PBSA, the next 12 to 18 months greater protection than more prime regional and 5.25% for prime may be challenging. But if you traditional full repairing and insuring regional assets5. This suggests look forward 10 years, there are FRI leases common for office, retail that investors see Covid-19’s no reasons why the sector should or industrial assets, for example.” challenges to the sector as be of any less interest. But you temporary rather than symptomatic should get a higher yield for student Student accommodation occupancy of a structural decline. accommodation than build-to-rent was lower than expected in 2020, at the moment and if you can buy with the sector’s largest operator at a higher yield, it compensates for Unite reporting a fall from 98% in that added risk.” 2019/20 to 88% in 2020/21.
Mark Bladon agrees “We’re currently However, while rent collection seeing significant growth in GDP, and occupancy have decreased in in part due to the unlocking student accommodation, they have of the economy and massive fallen less than in other sectors. For
5. CBRE, UK Bed Sectors Property Investment Yields June 2021, 2021, p.1 (Link)
14 Beds for Rent: The Golden Age Retirement & co-living: community spirit igniting once nascent sectors
Covid-19 shone an uncomfortable 182%, which presents a significant M&G’s Alex Greaves agreed that light on the state of the UK’s opportunity for investors7. work still needs to be done to retirement living provision and with persuade people to sell their the population of over 75s set to Our research supports this view, homes and move into retirement increase by 56% over the next 20 with 60% of respondents seeing communities. “This is the generation years, a once nascent sector looks the retirement living sector as that has probably created the set to explode in the coming years6. particularly appealing from an highest level of wealth through investment perspective over the homeownership. So, getting them to The investment tailwinds are next five years, up from 35% in change their psyche, both in terms well known, and as JLL’s Scott the first Future Living report, and of what retirement living can offer explained, they are only heading in 69% over the next 10. For investors and to sell their homes, is a big ask.” one direction: surveyed, retirement living is now the most appealing of the ‘beds for Time will be an influential factor “Life expectancy is growing, baby rent’ sectors, significantly ahead here. As more people become boomers are moving into later year of the well-established BTR and accustomed to a highly amenitised provision, while there is serious student accommodation sectors. offering at all stages of the ‘beds undersupply. These are all pretty for rent’ lifecycle, so the appeal of fundamental drivers for a compelling This trend looks set to continue, amenities such as cinemas, gyms, investment in my view.” with 83% of respondents agreeing as well as the ease of onsite care or strongly agreeing that retirement- will become more appealing. Indeed, the baby boomer generation for-rent will be an established asset represents a key turning point for class in the UK in five years’ time. Location and amenities will play a the sector, not only due to the pivotal role in attracting retirees into number of people in it but also the It is a severe lack of supply that senior accommodation, as well as size of its wealth. presents the greatest opportunity the appeal of living within a thriving for developers and investors. community; just one example is the Baby boomers are living longer The development of state-built offering from the Goldman Sachs and are wealthier than previous retirement properties first seen backed retirement living developer generations. For the first time, this in the 80s and 90s has dropped Riverstone, which features demographic is wealthier than off. This has left insufficient stock swimming pools, a concierge the generation that follows them, to meet the current demand of service and fitness studios across meaning they need to pass that occupiers. Developments that do its communities. The pandemic has wealth onto their less affluent exist often have poor amenities and amplified this. offspring. By 2040, it is predicted are of a quality that does not meet that the combined housing wealth the demands of a generation which and later retirement living power of has generally become accustomed the over 75s will have increased by to living somewhere desirable.
Retirement-for-rent will be an established asset class in the UK in five years
38% 38% 15% 3%
Strongly agree Slightly agree Slightly disagree Strongly disagree
6. Cushman & Wakefield, Senior Living – The imminent demand & emerging opportunity, 2020, p.3 (Link) 7. Ibid. p.9
15 Beds for Rent: The Golden Age The appeal of co-living Indeed, with co-living suited to “Suddenly you’ve gone from having spaces is growing cities like London, where buying a an early 20s to 30s cohort to now property is out of reach for many pitching to an early twenties up into The same factors are at play in and renting has risen from 22% to mid-fifties/sixties, pre-retirement co-living, which Simon Scott 30% since 2008, the convenience, cohort. That expanded market described as “that connection flexibility and quality of co-living is where the demand might come between students and multi-family is being increasingly seen as an from, which I think actually makes in its purest sense,” and is seen as attractive alternative to shared co-living investment even more a way for millennials to experience houses, which are often poorly compelling.” the same community living benefits managed by private landlords8. It’s clear from our findings that while still having their own private Simon Scott thought that with the investor attitudes to retirement and space. Furthermore, the focus on way we work evolving, there may co-living have evolved since our social events and communal be a market for older people to previous report. Some of that can spaces sets co-living apart from have a co-living base in a large city be attributed to the continuation of traditional BTR. alongside their main home further long-term trends: the UK’s ageing This is reflected in our findings, out. “Thinking about the future population and the continued rise with 44% of investors particularly and perhaps spending less time of ‘Generation Rent’. However, the optimistic about the co-living sector in the office, the question is ‘am I impact of Covid-19 should not be over the next five years, compared better off moving further out as my underestimated. The pandemic with 30% in 2019. full-term residence?’ and taking a has made people appreciate the co-living self-contained unit, which importance of social interaction, Paul Bashir said that “there will be a is cheaper than something found and when co-living and retirement huge demand for a product between in the multi-family market, as an developments are executed well, student accommodation and BTR, urban base. they put community at the heart. for 22-25-year olds rather than 28- 30-year olds.” 44%
OF INVESTORS PARTICULARLY OPTIMISTIC ABOUT THE CO-LIVING SECTOR OVER THE NEXT FIVE YEARS, COMPARED 8. CBRE, Europe Co-living Report, p.14 (Link) WITH 30% IN 2019
16 Beds for Rent: The Golden Age The future of ‘beds for rent’
Two central hypotheses of the coalescing, suggesting that the first Future Living report were that various sectors are maturing at over the next five years the UK different speeds. market would see a move towards a blended approach to investment in The past two years have seen very the ‘Living’ sector and that yields will different rates at which individual continue to align. asset classes are maturing. Over 7 in 10 respondents (71%) said the While more than three-quarters ‘beds for rent’ sector today can be of investors are still convinced by viewed as two-tiered, with BTR and both, there was an 8% decrease PBSA fully established versus the since 2019 when it came to yields other asset classes.
There will be a greater synchronicity of student, PRS, serviced apartments and retirement living yields in the UK within the next five years
17% 60% 19% 4%
The UK beds for rent sector can now be viewed as two tiered, with the BTR and PBSA fully established and the remaining asset classes still in their infancy
19% 52% 23% 6%
Strongly agree Slightly agree Slightly disagree Strongly disagree
17 Beds for Rent: The Golden Age It’s becoming apparent that while Reflecting the changing challenge: “We’re having to because they share similarities, each sector macroeconomic backdrop and of viability and access to land. The has different challenges which increasing competition for assets, sheer volume of capital looking for underpin a different risk and the barriers to the ‘Living’ sector’s exposure means that investors are return profile. “Investors shouldn’t growth have evolved. When having to increase their risk appetite necessarily look at them as one compared to the 2019 report, to meet return targets.” ‘Living’ category. twice as many respondents agreed that the availability of stock was a The pandemic has brought the Yes, there is the similar origination particular obstacle to growth. ‘London-versus-the-regions’ debate approach, similar design challenges into greater focus. More than 8 in and opportunities, similar This is unlikely to change in the near 10 respondents believe the outlook operational focus, similar funding term with significant amounts of dry for the ‘beds for rent’ sector is more structures. But ultimately, they have powder ready to be deployed. attractive outside of London. very different risk profiles.” said Moorfield’s Ferguson-Davie. Focusing specifically on the ‘Living’ This reflects a range of factors, sector, the planning system is a including the market’s growing Driven by changing consumer major frustration. Simon Scott comfort with a pan-UK approach, attitudes, retirement living will argued that “planning, and the the depth of the opportunity be the next use class to firmly knock-on effect on certainty and and the cost of land. Affordability establish itself. The demand/supply timing, is undoubtedly a major remains a key issue across all dynamics have become increasingly challenge. There’s still talk about sectors. difficult to ignore and the hunt for simplification of the planning yield has intensified, which could process to come, but until there’s Population growth is also predicted be the start of “all the sectors clarity on that front, scale will be to be greater in regional centres. coming together” according to Alex difficult to come by.” Added to this are pandemic-related Greaves. “Collecting rent, cleaning, factors including demand for more refurbishing – whether people Rebecca Taylor, Managing Director outside space and the impact are 18, 50 or 75, there are a lot of of BTR at Long Harbour, commented of businesses embracing remote synergies between them.” on how the business is evolving working. its strategy in response to this
Q8-2. Which of the following do you feel are particular obstacles to the growth of non owner-occupier residential real estate in the UK? (Please select one column response for each row)
Unattractive pricing 52% 57%
Low income yields 48% 50%
Economic uncertainty 42% Did not ask
Availability of stock 40% 20%
Regulatory uncertainty 35% 41%
Political uncertainty 33% 72%
Regional polarisation across the UK 33% 17%
Currency fluctuations 19% 26%
A mentality fixed on building for sale 17% 9%
Restricted access to opportunities 15% 31%
Lack of historical information of asset classes 15% 13%
Other 4% 4% 2021 2019
18 Beds for Rent: The Golden Age Charles Ferguson-Davie believed it’s are more vibrant, people won’t want term structural trends have been simply about viability. “There are a to be stuck out in the countryside.” accelerated by Covid-19. There lot of investors out there who want is also growing investor demand to be in London and would prefer to The political landscape also looks for secure, stable income, with be in London. The issue is that there very different today. In 2019, significant questions now being is more competition for land.” political uncertainty was the asked as to whether the office and standout concern for investors. retail sector can offer this. Reflecting how concentrated This is no longer the case, with a the market has been on London, significant 39% decrease in the As the real estate industry adapts there is much less room for yield number of investors citing it as an to the new normal, there will be compression in London versus the obstacle to growth, down from 72%. significant variation in performance regional market. At the same time, across the ‘Living’ sectors. However, the percentage of investors citing “The UK is now in quite a good perhaps the most compelling finding regional polarisation as an obstacle position. We no longer have so much from our research is that there will to growth has nearly doubled from uncertainty about the direction of be a five-fold increase in the next 17% to 33% since 2019. Brexit, concerns about a Corbyn five years in the number of investors government or the associated committing over £1bn to the ‘Living’ One of the big unanswered disruption of the general election,” sector, accompanied by a changing questions raised by the pandemic said Ferguson-Davie. investment approach from providing was whether urban centres will space as a product to embracing Investor optimism and appetite still hold the same level of appeal space as a service. as before. Alex Greaves said that for exposure has increased is a question which “is being re- substantially in the two years examined by many people. But you since the first Future Living can bet that once people are going report. This has been driven by a back to the office and city centres number of factors. Primarily, long-
Gross Investment into ‘beds for rent’ sector
Q10. What will be your gross investment in the beds for rent sector in the one, three and five years? (Please select one response)
8%
8% 8% 10% 13% 17%
29% £1billion-plus
33% £250m
£100m 73% 29% £50m
38%
23%
19 Beds for Rent: The Golden Age Conclusion
• Covid-19 has shown the research, it shouldn’t be resilience of the ‘Living’ sector long before more and more and fundamentally changed ‘Living’ assets become investors’ perspectives. Rent particularly attractive collection rates have been high investment prospects. across ‘beds for rent’ segments and the increased focus on ‒ Secondly, the rise of ‘Living’ flexibility, community and strategies has brought to the amenities suits asset classes fore the ‘London-versus-the- such as BTR and co-living regions’ debate. The bulk of particularly well. survey respondents are looking outside of London for the • All signs point to a continuation future of ‘beds for rent’. One of the retirement living boom. of the pandemic’s unanswered The current batch of retirees are questions is whether urban wealthier and are living longer centres, particularly London, than ever before. Investors can hold their appeal. An see the opportunities which answer will likely surface this presents and predict that when more workers return to retirement living will become an the office. established asset class in the UK within the next five years. ‒ For investors, the appeal of any use class continues to • The convenience, flexibility, be driven by the risk return resilience and quality of co-living profile. From this perspective, and BTR assets make them the ‘beds for rent’ sector looks attractive alternatives to shared attractive, but despite the houses. This will likely attract many similarities between the a broad church of renters of all component parts, there remain ages. Furthermore, the increased fundamental differences spotlight on social interaction and between each of them which community plays into the hands will impact the pace at which of investors in BTR and co-living. blended ‘Living’ strategies become commonplace. • PBSA and BTR are firmly established in investors’ eyes Methodology: as attractive and stable asset classes. Next to join them, our Research was conducted by FTI research leads us to believe, will Consulting online from 24 – 31 be retirement living. However, March 2021 with n= 52 Global there still exists a number of Institutional Investors investing in points of division in the ‘beds for UK real estate representing £514 rent’ sector: million in global assets under management. ‒ Firstly, there is a clear distinction between those The convention on rounding established assets and those was followed, so sums may not yet to firmly plant their flag always add up to 100%. For more in investors’ ‘beds for rent’ information on the research portfolios. However, given the methodology please contact: direction of travel noted in our Dan Healy [email protected]
20 Beds for Rent: The Golden Age Get in touch with the team
Mark Bladon William Scoular, Head of Private Head of Real Estate Client Real Estate Lending
+44 (0)20 7597 3970 +44 (0)20 7597 4428 [email protected] [email protected]
Jane Niles, Head of Angus Gordon Real Estate Offshore Syndication
+44 (0)1481 706432 +44 (0)20 7597 4533 [email protected] [email protected]
Adam Jaffe Daniel Carlisle Originator Originator
+44 (0)20 7597 4774 +44 (0)20 7597 4241 [email protected] [email protected]
Erin Clarke Hayley Scott Originator Originator
+44 (0)20 7597 4881 +44 (0)20 7597 3589 [email protected] [email protected]
Hollie Sleigh Ian Burdett Relationship Manager Offshore Originator
+44 (0)1481 706415 +44 (0)20 7597 4225 [email protected] [email protected]
Jonathan Long Joshua Weinstein Originator Originator
+44 (0)207 597 5689 +44 (0)207 597 5481 [email protected] [email protected]
Matthew Robinson Scott Philpott Originator Originator Offshore
+44 (0)20 7597 5384 +44 (0)1481 706496 [email protected] [email protected]
Stephen Martin Steve O’Regan Originator Originator Offshore
+44 (0)20 7597 5049 +44 (0)1534 512654 [email protected] [email protected]
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