3 trends for UK residential real estate in 2023
2022’s residential real estate market was all about the growing importance of the environmental element of ESG, the struggles with new developments and rising inflation and the affordable housing crisis reaching a peak in the UK and Europe, writes Melis Karabulut of Spaceflow.
Here is what we have learned about the residential landscape from market reports, industry events, podcasts and webinars in 2022 – and our projections for 2023.
Build to rent: shortage in supply, abundance in demand – promising opportunities for investors
In the UK, the build to rent market is gathering pace inside and outside of London with more promising investment opportunities than in any other country in Europe. The number of completed BTR units has tripled over the last five years due to market needs, while BTR investment in 2022 reached £3.8bn, 31% higher than the 2016-2020 long-term average according to Knight Frank’s 2022/2023 Multi Housing Report.
While UK investors have been influenced by the macroeconomic slowdown, they are still attracted to the rental sector. This is due to the resilience of the rental market in times of economic uncertainty – a shortage of supply in rental homes and consequently scaling rents (up 21% over the last decade) and growing tenant demand.
We expect rental growth to persist in 2023, rising to slightly under 50% of an average tenant’s pre-tax income.
“Rising costs will not detract from the desirability of residential investments in the long run. The underlying fundamentals of the residential market are strong and will remain strong,” said Mark Kuijpers from Greystar at the European Residential Investments panel at EXPO Real 2022.
PBSA: shortage in supply, even greater abundance in demand – promising opportunities for investors
The housing supply shortage does not only apply to build to rent, but to other asset types such as purpose-built student accommodation. Research reveals that there are currently 3.1 students for every student bed available – a shortfall of almost 1.5m student beds across the PBSA sector.
By 2025, the UK will face a shortfall of around 450,000 student beds, according to the latest data from StuRents. This has pushed investors to increase the volume of money targeting the sector, resulting in an €11.7bn increase in PBSA investment in 2022 (up 130% on 2021). Still, this does not mean that the huge undersupply can be addressed immediately. As a competitor to British student housing, the Irish market is offering grand opportunities, welcoming 139% more European students after Brexit.
The new generation of real estate: emphasis on location is still important, while professionally managed spaces and the social element gain traction
Build to sell has been losing traction among younger generations in the last couple of years due to inflation and increasingly harder-to-get mortgages, and this has caused renting to almost become a lifestyle choice.
The current BTR, co-living and student housing market mainly targets the 18-35 age bracket, with a focus on flexibility, easy access to urban spots and social life and professional maintenance. For example, in a tenant demands and needs survey conducted in November 2022, more than three-quarters of London-based tenants found location to be an important factor for their living experience, while they also highly value seamless maintenance perks such as parcel services and online issue reporting.
Buildings with high customer service scores have the strongest correlation to professional management – including high-level communication with tenants, elevated convenience of living with the help of technology, community activities, a dedicated facility team taking care of issues, amenities and spaces for activities, sustainability practices, concierge and storage services as well as a strong focus on tenant wellness, safety and security.
In our estimation, these trends will shape much of the residential real estate dialogue in 2023 in the UK. We’ll regularly update our audience on these trends as they come, since the market is subject to change at all times.
- Melis Karabulut is partnerships and event specialist at Spaceflow
- Spaceflow is a digital tenant experience solution that lets landlords control their properties and occupiers use their spaces all on one platform