JLL research reveals that UK living investment totalled £2.5bn in Q2 2023

JLL has released research, revealing that UK living investment reached £2.5bn in the second quarter of 2023. This marks a significant increase from £2.1bn in the previous quarter, with the build to rent (BTR) and student housing sectors defying ongoing economic concerns.

BTR investments accounted for the majority, totalling £1.4bn in completed deals during the quarter. This represents a 1% increase from Q2 2022 and a substantial 42% increase from the five-year average. It was the most active Q2 on record for BTR investment.

However, despite the strong performance of BTR, total living transaction volumes fell by 35% compared to Q2 2022 (£3.9bn) and were 20% lower than the five-year average (£3.2bn). This decrease was partly attributed to a slowdown in healthcare investment, which saw just £103.7m transacted in Q2.

The BTR sector benefited from a robust quarter for single-family rental, with £451m invested across nine deals. Notably, this includes Citra Living’s forward purchase of 604 homes from Barratt Homes for £168.4m at the end of the quarter, in a deal advised by JLL.

In total, BTR investment reached £2.9bn in the first half of 2023, aligning with H1 2022 figures and representing a 24% increase from the five-year average. Investors funded the construction of 5,500 new homes through forward funding, forward purchase, and equity joint venture deals, a significant increase from the 2,800 homes funded during the same period last year, bringing the H1 total to 7,300.

Q2 saw a resurgence in student housing investment, surging from £134.5m at the start of the year to £1bn. The number of deals also rose from seven in Q1, four of which were land deals, to 16. The average deal size (excluding land and M&A) rose from £24.6m to £65.6m, in line with last year's average of £65.3m.

While investment in standing stock accounted for 62% of the Q2 student housing total, the share of forward funding increased to 30%, the highest level since 2020. In total, investors forward funded 2,331 new beds, surpassing the combined figures of the previous three quarters.

Despite the improvement in student housing investment from the first quarter, Q2 witnessed a decline of 47% compared to Q2 2022 and a 46% drop compared to the five-year average. The overall investment for the first half of the year amounted to £1.1bn, representing a significant 67% decrease from H1 2022 and 56% below the five-year average. Consequently, H1 2023 recorded the most subdued first half for the student housing sector since 2019.

Huw Forrest, head of UK student housing at JLL, said: “Although we are seeing lower volumes than we have in recent years, this is being driven by broader economic uncertainty rather than concern about sector resilience, which is strong. The challenge right now is pricing: between the high cost of debt and the underlying performance of cashflows, buyers and sellers can find themselves in a stalemate. As a result, some investors, in no hurry to invest or divest at a time of high risk-free rates, are choosing to wait and see how expectations adjust. Despite the challenges, deal activity continues, and off-market transactions are progressing which is a testament to the underlying strength of interest in the student sector. “

Karl Tomusk, associate director for living research at JLL, said: “Given the continued challenges of development viability, it was encouraging to see an uptick in forward funding deals after the last three quarters. Even so, these deals accounted for less than a third of total investment and will deliver just over 2,300 beds – a fraction of the shortfall JLL has estimated. Investment activity might have woken up, but we’re still far from tackling the persistent undersupply of student housing in the UK.”