Living investment rises to record £18bn despite end of year slowdown

Large portfolio and platform sales fuelled a record year of £18bn in investment in living sectors in 2022.

JLL recorded a 32% lift in annual volumes led by a surge in purpose-built student accommodation activity. In 2022, there was £8.2bn in PBSA investment, up from £4.5bn a year earlier and contributing 45% of total living investment.

The sector was driven by large portfolio deals including Greystar and GIC’s purchase of Student Roost and its 26,000-bed platform, which completed in December following approval from the Competition and Markets Authority, and the take-private of Singapore Press Holdings by the investor consortium Cuscaden Peak.

Build-to-rent tracked £6.4bn in transactions, accounting for 35% and rising 5% from 2021’s previous record of £6.1bn. Healthcare attracted £3.5bn (19%), as merger and acquisition activity in the care home market pushed the sector up 9% on the previous year.

Excluding M&A and development purchases, JLL tracked £10bn, accounting for 22% of £48bn in direct real estate in 2022. This proportion peaked in the fourth quarter, when living rose to 27% compared to offices making up just 30% of quarterly investment.

Each sub-sector achieved record investment levels, despite a downbeat Q4. The mini-Budget saw market confidence dive, putting inflation and rates on a steeper trajectory, slowing transactional activity. Excluding Student Roost, volumes dipped 24% in Q4 compared to Q3, as the number of deals fell to half the level of Q4 2021. This quieter period will see lower volumes at the start of 2023, with a preference for built assets across all sectors.

Development funding has been worst hit with annual investment dipping 8% in 2022, but rising 82% for built assets. There was £5.8bn in corporate entity deals and a further £4.8bn in investment stock, leading to £11.2bn in built assets, accounting for 62% of living spend, up from 45% in 2021.

Student and healthcare both attracted heightened levels of investment dedicated to standing stock, at 83% and 91% respectively, compared to development-driven BTR at 19%. However even BTR saw a shift in Q4, as investment assets rose to 24% of sales compared to forward funding at just 21%.

Simon Scott, lead director for living capital markets at JLL, said: “Living investment rose to a record level last year, but continued growth faces a number of challenges.

“The mini budget and consequent rate rises have made development increasingly difficult in many locations. Investor demand for stabilised stock has intensified and that will continue in 2023, but buyers will be limited by the few assets still available.”

Huw Forrest, head of student housing at JLL, said: “Investor appetite for PBSA is clear having shown its defensive characteristics over past cycles. The level of transactions in 2022 eclipsed all previous years and that is despite a significant tail off from Q3 onwards.

“We are seeing limited transactions at the moment, as investors watch markets stabilise and with improving sentiment we are expecting a material pick up in dealmaking in H2 2023. The major problem continues to be development viability in the current environment and it is likely that this will lag the investment market pick up.  In most cases, new development activity is likely to be restricted to only the strongest locations and markets.”

Emma Rosser, associate director for research at JLL comments: “The ongoing disruption of the economy, rising inflation and interest rates have transformed real estate investment.

“Transactions for once nascent living are now neck-and-neck with offices, student housing is attracting more global and Asian capital than ever and build-to-rent is no longer limited to forward funding new development. That diversification will continue as more investors turn to different living products this year, despite the obvious challenges in debt and construction.”