Disclaimer: Views in this blog do not promote, and are not directly connected to any L&G product or service. Views are from a range of L&G investment professionals, may be specific to an author’s particular investment region or desk, and do not necessarily reflect the views of L&G. For investment professionals only.
UK living sector investment: Slipstream into the mainstream
The fundamental underpin and regulatory environment in the UK relative to other global markets makes its residential sector an attractive opportunity for investors, in our view.
Institutional exposure to the UK residential sector remains low but is growing quickly. In 2023, residential assets accounted for 9% of institutional real estate capital value, up from 3% in 2008². We believe this is likely to grow further; residential consistently tops investor preference surveys supporting the view of rapidly increased allocations. In the UK, allocation to residential remains significantly below markets like Germany, the US and the Netherlands with 12%, 29% and 59% of real estate capital value, respectively[1].
The cashflow profile of the sector is supporting conviction. Since 1987, residential assets recorded robust real rental growth of 1.1% p.a. compared with -0.3% for traditional commercial assets[2].
In our view, structural headwinds in the retail and office sectors have also encouraged institutional capital to rotate to alternative real estate assets. PMA forecast average residential rental growth of 3.6% p.a. in the UK over the next five years[3]. Across eight developed markets measured this is behind only the US and Germany.
Read our full report on the UK living sector.
[1] MSCI Global Annual Property Index as at Dec 2023
[2] OECD Housing Prices, MSCI UK Property Index, ONS as at April 2024
[3] PMA Global Multifamily Forecast Data as at April 2024
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