UK living navigates short-term headwinds for long-term growth

Investec's "2025 Future Living" report reveals a complex picture for the UK Living sector, which balances resilience and appeal.

UK living - Investec

While global institutional investors maintain a positive long-term outlook due to demographics and supply-demand fundamentals, they are currently grappling with near-term geographical, macroeconomic and regulatory challenges.
Political uncertainty is a major deterrent, with 76% of investors believing it undermines the UK's appeal. The constant shifting of government policies and slow bureaucracy adds substantial time and cost to projects, making long-term investment decisions difficult.
Stubbornly high inflation and "higher for longer" interest rates are seen as existential threats. 60% of investors feel the UK property market is losing competitiveness without faster rate cuts. Construction cost inflation (74%) and high interest rates (70%) are the biggest obstacles to growth.
Despite promises of reform, planning is now a major barrier for 56% of investors in non-owner-occupied residential real estate, up from 37% in 2023.
The Building Safety Act has profoundly impacted strategies and operations for 92% of investors, primarily due to higher compliance costs (68%), increased administrative duties (60%), and extended project timelines (54%). Projects that should take three months can now take over a year. This has led 74% of investors to adjust strategies, with nearly half (46%) pivoting to refurbishing existing stock over new development. This is evident in London, where new home starts have plunged 38%.
While less impactful than the Building Safety Act, the Renters' Rights Act creates some unease regarding court processes and rental challenges. It's expected to push private landlords out, shifting focus to professional institutional landlords. This has led half of investors to increase investment in later living, while 46% will decrease investment in single-family rental.
However, there are signs of resilience and optimism. Only 22% of investors now see access to finance as an obstacle, down from 45% two years ago. The debt market for the Living sector is competitive, and funding is more readily available.
Despite short-term hurdles, 88% of investors do not view the Building Safety Act as a major obstacle to the long-term growth of the non-owner-occupied residential sector. The Living sector is considered less volatile than office or retail, driven by structural undersupply and stable long-term demand.
More investors expect risk-adjusted returns to increase across all main sub-sectors over the next five years.
Investors are actively adjusting strategies, and some believe that the challenging market conditions present a "great time to buy" for those willing to navigate the complexities, potentially leading to significant returns in the future due to less competition for stock.