UK living sectors to attract £45bn by 2029

Institutional investors are planning to deploy £45bn in the UK’s living sectors over the next five years, signalling a continued shift towards residential assets. According to Knight Frank’s NextGen Living 2025 report, based on insights from 56 institutional investors managing more than £60bn in UK living assets, nearly a quarter plan to double their current exposure by 2029, with close to half targeting at least 80% increases in allocation. The scale of this transformation is highlighted by the current market value of the living sectors, which has now reached £212bn, according to Knight Frank. The firm estimates the current market values of the purpose-built student accommodation market to be £89bn, build-to-rent to be £79bn and senior housing at £44bn. For context, the industrial sector is valued at £283bn, retail at £271bn and offices at £263bn. According to Knight Frank, investment into UK living sectors topped £10bn in 2024, accounting for around a quarter of overall real estate acquisition activity. The research shows investor appetite for high growth sub-sectors is set to surge, with the proportion of investors targeting senior housing rental expected to nearly double from 21% today to 39% by 2029. Similarly, exposure to single-family housing is projected to increase substantially, with the proportion of investors rising to 71% by 2029 from 41% currently. Knight Frank’s survey points to key urban centres as strategic investment targets, with London, Bristol and Manchester emerging as the top three locations across the living sectors. Other prominent locations for investors in the top 10 include Birmingham, Edinburgh, Bath and Oxford. Setting out strategies Environmental and social considerations are increasingly influential in shaping investment strategies. Investor pressure has emerged as the primary driver, with 81% of respondents citing this as a key factor in their ESG investment decisions. In development priorities, EV charging infrastructure leads new project requirements, with 66% of investors targeting this feature. Additionally, sustainable energy solutions are gaining prominence, with just over half of investors focusing on heat pumps and solar power generation in their developments. The firm’s research points to improving market conditions heading into 2025. Construction cost inflation has shown significant moderation, falling to 2.9% in 2024 from its peak of 15.5% in 2022, with further stability anticipated as interest rates continue their downward trajectory. The investment landscape has also evolved, with joint ventures emerging as the preferred route to market over traditional purchase of stabilised assets, reflecting adaptation to current market conditions. Tranformation Oliver Knight, head of residential development research at Knight Frank, said: “The UK’s living sectors have experienced a significant transformation over the past five years, with the total value of the market increasing by 45% over that time as established players expand and global newcomers look to capitalise on the opportunity. “Growth hasn’t been without challenges, but the future is bright. Our research confirms investors continue to see a compelling case for investing in assets that benefit from changing ways of living and which provide strong counter-cyclical features that can help them achieve consistent returns.”  James Mannix, global head of living sectors at Knight Frank, said: “The living sectors continues to demonstrate remarkable resilience and growth. The fundamental drivers migration, urbanisation, ageing populations and increasing student numbers are all structural tailwinds that bridge economic cycles. “We are seeing investors not only deepening their exposure to established segments, but also strategically expanding into emerging areas like senior housing and single-family housing. Our research indicates that by 2029, 30% of the investors surveyed in this year’s report, expect to be invested across all living sectors.”    Lisa Attenborough, head of Knight Frank capital advisory at Knight Frank, added: “Despite the recent volatility in the bond market, we’re seeing remarkable confidence from commercial real estate lenders. “Recent landmark deals by Blackstone and Goldman Sachs underscore this confidence in the market’s potential. Leveraged buyers are also returning to the market, as some 42% of investors told us that they plan to increase their debt exposure in the coming year.” Image © Close Brothers Property Finance