UK residential sector investment volumes reached £2bn in Q2 2022, decreasing 20% from the same period in 2021, according to global real estate advisor CBRE.
CBRE says year-to-date transaction activity, combined with current pipelines, points to investment volumes reaching a record total for 2022, notwithstanding headwinds from rising debt costs and higher construction costs.
Build-to-Rent (BtR) accounted for 65% of total investment for the quarter at £1.3bn, 59% higher than Q2 2021. More than 80% of capital was deployed across the regions with investors attracted to the yields on offer in these markets.
Key second quarter deals include Swiss Life Asset Managers and Mayfair Capital’s acquisition of Duet BtR scheme in Salford, the forward funding of Lisbon Street, Leeds by Cortland Group, and Get Living’s forward funding of Sherlock Street, Birmingham.
The affordable housing sector also remained active in Q2 2022 with strong levels of liquidity, interest coverage and income generation. The sector continues to attract a growing weight of institutional capital, particularly for well-located assets. Notable transactions for the quarter include Thrive Homes and CBRE UK Affordable Housing, which jointly purchased its second affordable housing property, and Octopus Real Estate’s acquisition of East UK Registered Provider, marking its entry into the affordable housing sector.
Additionally, CBRE identified £500m of investment in the Purpose-Built Student Accommodation (PBSA) sector for Q2 2022 across 14 transactions. Investment was weighted towards operational assets in Q2, accounting for 11 of the 14 transactions and 75% of PBSA investment by value.
Looking forward, ongoing supply constraints and slower development activity could impact investors’ ability to purchase PBSA assets. Nevertheless, GIC and Greystar Real Estate’s anticipated acquisition of the Student Roost portfolio would drive PBSA investment volumes to circa £6bn by year end, demonstrating continued confidence in the sector despite the debt and construction cost headwinds.
These headwinds will also affect other residential sectors, such as co-living, where sourcing funds for schemes may prove challenging. However, higher costs across the UK residential market are somewhat mitigated by strong rental growth in the short-term.
”The UK Residential sector remains a highly competitive market and as such, yields remain largely stable across all locations. As we head into the second half of the year, we anticipate continued investment into the sector from a wide range of capital sources but remain alert to the recent softening of market sentiment,” said Andrew Saunderson, Head of Residential Capital Markets, CBRE.