Rise of the living sector
The living sector in the UK has experienced significant change and growth over recent years, driven by evolving consumer demand and sustained investment. Unprecedented levels of capital inflow reflect confidence in its resilience and long-term appeal, with established companies expanding aggressively and new global players taking advantage of opportunities.
Levels of investment doubled to over £15bn from 2018 to 2022 and continued to grow in 2023, despite a background of sustained macroeconomic challenges. Furthermore, predictions suggest investors will look to significantly increase their exposure in the years to come, particularly in larger cities, demonstrating a strong appetite for future developments despite high inflation and rising debt costs.
The increase in planning for new homes reflects both the sector's dynamism and its ability to adapt to market demands and suggests an optimistic outlook for the coming years, as the living sector continues to adapt and thrive amidst changing economic landscapes and demographic preferences.
Market overview and trends
The living sector is currently under the influence of significant economic shifts and demographic trends.
Economic influences
The UK's living sector has been contending with the aftermath of the pandemic, which has introduced volatility in terms of inflation and fluctuating interest rates. This economic climate has pressured developers and investors to be strategic in their capital deployment and focus on sustainable growth. Reports indicate that despite global economic challenges, investment in the build-to-rent sector showed resilience, with a notable influx of nearly £4.9 billion within the first three quarters of last year.
Demographic shifts
An ageing population and evolving household structures are driving increased demand for various types of living arrangements in cities across the UK. The rise in single-person households and the growing student population have led to innovative solutions, such as the growth in the co-living model, which is expected to keep gaining attention in 2024 and beyond.
Supply and demand dynamics
The UK housing crisis is a critical driver of supply and demand dynamics, and recent data reveals a record 59,043 build-to-rent (BTR) homes under construction during Q3 2023 and more than 110,000 in the planning phase, highlighting a burgeoning sector that's contributing to the alleviation of housing shortages. However, affordability remains a complex issue, with private rental prices continuing to rise amidst limited supply.
Sector-specific developments
In the dynamic landscape of the UK's housing market, sector-specific developments are emerging with intensity in BTR, Purpose-Built Student Accommodation (PBSA), Co-Living spaces, and Innovation Hubs, each catering to distinct segments of the population.
BTR
Fast becoming an established sector, BTR homes have shown remarkable growth, and this progression demonstrates the sector's commitment to addressing the housing needs of those who favour rental flexibility and communal living amenities, characteristics particularly associated with young professionals.
Purpose-Built Student Accommodation (PBSA)
PBSA is expanding to meet the rising demand for student housing, which continues to evolve to meet students' academic and social needs in mind. The significant investment and ongoing construction in this sector illustrate its importance to the educational ecosystem and attractiveness as one of the property classes with the highest rental yields.
Co-living and shared living
Co-living concepts are increasingly popular among urban populations as they offer shared living solutions that blend private living spaces with communal recreational areas. The focus is on creating a sense of community among residents, often appealing to a demographic that values social connectivity alongside affordable and flexible living arrangements.
Innovation hubs
The notable surge in innovation hubs reflects the UK’s growing emphasis on fostering creativity in tech and digital development. These hubs have become integral to the commercial living sector investment, serving as hotbeds for collaboration, entrepreneurship, and knowledge exchange. With a focus on nurturing start-ups and a culture of innovation, these hubs play a crucial role in driving economic growth and attracting investment in cities across the UK.
The transition within these sectors reflects a wider shift in urban living preferences and the real estate industry's response to the changing needs of society.
Future outlook
A multitude of factors will converge to shape the future of residential developments.
Legislation and planning changes
The National Planning Policy Framework and Infrastructure Levy are likely to have a significant impact on development strategies. Similarly, the Levelling-Up and Regeneration Act 2023 (LURA) is set to reshape the planning system and wider residential landscape in 2024.
Legislation, such as the Building Safety Act 2022, introduces stringent requirements for developers, which could influence the pace and nature of construction in response to the UK's housing shortage. The upcoming general election could also lead to shifts in policies, with political parties prioritising different aspects of the living sector in their manifestos.
ESG integration
Introduced in the Environment Act 2021, the biodiversity net gain (BNG) rules finally landed last month and require new housing developments to be ‘nature positive’. In a wider context, climate change and environmental sustainability considerations are core themes of property development requiring sound ESG strategies. However, the challenge of renovating existing housing stock to meet the required energy efficiency standards is substantial.
Health and wellbeing emphasis
A holistic approach to mental health and wellbeing is becoming central, recognising the role of housing with integrated healthcare or easy access to public facilities. The development of spaces that promote wellness is particularly relevant due to the ageing population and the focus on the later living sector. Stakeholders are becoming more attuned to the significance of living environments that support both physical and mental health.
With you from the ground up
DWF has one of largest dedicated real estate teams in the UK, as well as specialist real estate teams in Europe and beyond, advising clients at every stage of a property, portfolio or project life cycle.
To find out more about our capability and experience, contact Global Head of the Built Environment Sector, Melanie Williams.
