Institutional investors set to embrace blended ‘beds for rent’ strategy in the UK

By Bridging Loan Directory 30th April 2019

91% of investors believe strategies encompassing student accommodation, Private Rented Sector, serviced apartments and retirement living (“beds for rent”) will be common within 5 years

A third of investors are considering increasing activity across ‘beds for rent’ asset classes, and all but PRS could experience a three-fold uplift

Over half (56%) of investors see the retirement living sector as the most appealing asset class over the next 10 years
Political uncertainty and London / rest of UK polarisation biggest challenges to growth

Institutional investors are increasingly looking at replicating the US approach and taking a blended approach to the UK ‘beds for rent’ sector as one asset class.

The shift is being driven by structural trends impacting home ownership numbers, the growing maturity of the beds for rent asset classes as well as the attraction of the low but stable income characteristics they offer.

The research also found:

85% of investors expect a greater synchronicity of yields in the ‘beds for rent’ sector in the next five years
6 out of 10 investors highlighted the UK’s cultural focus on home ownership as impacting the sector’s maturity
Currently student accommodation is the only asset class investors say is more mature in the UK (35%) than in the US (28%) as it’s already heavily institutionalised.

The findings have been revealed in a global survey of more than 50 institutional investors, representing £338 billion in global assets under management, commissioned by Investec Structured Property Finance, a leading UK provider of investment and development finance. Titled Future Living: How global investors will transform UK beds for rent, the report concludes that the complementary use classes could support a single return target and give investors access to strong and sustainable income.

Mark Bladon, Head of Living at Investec Structured Property Finance, comments:

“The UK beds for rent sector is at a tipping point, which offers a real opportunity for the industry to respond and adapt to long-term structural changes that will help the UK catch up with the US market. Investec has been lending in this sector since 2012 and we are witnessing first-hand the way living in this country is changing.

“For example, ‘Generation Rent’ don’t see home ownership as a necessary and achievable goal compared with their parents and therefore may rent for most of their lives. Furthermore, the UK’s ageing population and a shortage of suitable high-quality real estate for the elderly means we can expect to see expansion in the retirement living sector to meet this inevitable demand.

“As a result of these drivers, institutional investment in these specific areas and the wider beds for rent market is on the rise, including investing in blended schemes similar to those seen across the Atlantic. The majority of investors are positive despite the negative impact of several macro-economic obstacles, particularly the political uncertainty around Brexit, which shows the strength of the UK market and the opportunity it presents.”

The report’s findings showed that political uncertainty is currently seen as the biggest obstacle to growth (72%), followed by unattractive pricing (57%) and low income yields (50%), although despite this the number of those who are optimistic about each asset class in the ‘beds for rent’ sector far outweighs those who consider it a risky investment.

Retirement living is an example of an asset class sheltered from macro-economic factors and currently underdeveloped in the UK, which is why more than half of the investors surveyed (56%) felt that retirement living will be particularly appealing over the next 10 years – more than student accommodation (43%) and PRS (44%).

Nearly a fifth (17%) of investors said that regional polarisation across the UK was a clear obstacle to the growth of non-owner-occupier real estate in the UK. However, 78% strongly agreed that London will always be a fundamentally different market to the rest of the UK, with a ‘London versus the rest of the UK’ dynamic causing a polarisation in the maturity of each use class depending on location.