BLOGS

Capital keeps flowing into the living sectors

While the UK sales market continues to navigate cautious buyer sentiment and stretched affordability, institutional capital has found a reliable home in the living sectors. Savills reports that UK build-to-rent (BTR) investment hit a record £5.3 billion in 2025, up 6% year-on-year, with Single Family Housing alone attracting £3.17 billion — 59% of total BTR investment, up from 47% in 2023. Purpose-built student accommodation (PBSA) told a similar story, with Knight Frank recording £4.3 billion of investment across the year, a 10% increase on 2024 and just shy of the ten-year average of £4.5 billion.

The pattern is consistent: investors are prioritising sectors with contracted, inflation-linked income over assets exposed to transactional sales cycles. For lenders and institutional allocators, this isn't a niche rotation — Savills notes the living sectors (BTR, PBSA, senior living and care) are on track to overtake offices as the largest single share of UK real estate investment for the second year running.

Why income certainty is winning out

The logic is straightforward. Student tenancies are typically underpinned by guarantors and academic-year contracts, while BTR income benefits from professional management and lower void risk than fragmented buy-to-let stock. Savills points to structural undersupply — 146,700 completed BTR homes nationally against 101,500 still in the planning pipeline — as the reason rental growth, not just capital appreciation, remains the dominant return driver. In PBSA, Savills estimates a shortfall exceeding 310,000 beds, concentrated in London, Bristol, Manchester, Nottingham and Glasgow.

REalyse planning pipeline data lets investors track this imbalance directly at the local authority level — comparing consented BTR and student unit counts against existing stock and rental comparables to identify where undersupply is most acute, and where a forward-funded scheme is most likely to lease up quickly.

Watkin Jones: a case study in JV-led delivery

Few developers illustrate the current funding model better than Watkin Jones, the UK's largest PBSA and BTR developer, which has leaned heavily into joint ventures and forward sales to keep its pipeline moving through a "challenging market" — its own description after full-year revenue fell to around £280 million, down from £362.4 million in 2024.

Rather than holding assets on balance sheet, Watkin Jones has structured a run of institutional partnerships:

• Stratford, East London — a £120 million, 397-bed PBSA scheme forward-sold to Housing Growth Partnership (HGP), the Lloyds Banking Group and Homes England-backed impact investor, with HGP funding 75% of the equity and Watkin Jones retaining 25% plus the management mandate through its Fresh platform.

• Glasgow — an 784-bed scheme ("The Ard") sold into a joint venture 95% owned by Maslow Capital, with an estimated Gross Development Value of £182 million on completion — Watkin Jones' first transaction with the real estate finance manager.

• Bristol — a second Maslow Capital partnership, a 484-bed scheme on Malago Road with a GDV of approximately £102 million, which recently cleared Gateway 2 approval under the Building Safety Regulator and is targeting completion for the 2028 academic year.

This capital-light, JV-heavy approach does two things: it de-risks development for the housebuilder while giving institutional partners — pension-backed vehicles, specialist debt funds, impact investors — direct access to secured income without construction risk sitting on their own books. Knight Frank's data shows this isn't isolated to Watkin Jones; a record number of funding deals and joint ventures took place across PBSA in 2025 as investors sought deployment routes beyond a limited pool of standing operational stock.

Financing conditions are easing, selectively

Debt markets are supporting this activity. Knight Frank Capital Advisory reports lending margins on operational PBSA assets sitting around 160 basis points, with debt supply at its highest level in more than a decade — conditions the firm expects to tighten further into 2026 as bank and non-bank lender pricing converges. For BTR, the relaunched Private Rented Sector Guarantee Scheme, offering £2 billion in government-backed loans, could unlock a further 13,000 homes from the currently consented pipeline, according to Knight Frank.

That said, the market remains selective. Savills notes BTR starts, not completions, have lagged for eight consecutive quarters, and starts in London fell 93% between 2022 and 2025 — a reminder that planning consent and funding availability don't automatically translate into shovels in the ground. For developers and lenders, REalyse's planning and land data can help distinguish schemes with genuine viability — strong local rental comparables, realistic build costs, achievable Gateway 2 timelines — from consents at risk of stalling.

Where the opportunity sits for investors and lenders

For institutional investors, the current cycle rewards precision over scale alone. Knight Frank's research highlights that assets in Russell Group university cities, or portfolios offering value-add potential through refurbishment, remain the first choice — while pricing misalignment between buyers and sellers has extended deal timelines elsewhere. REalyse rental yield and comparables data across BTR and PBSA-adjacent postcodes can help identify which local markets combine strong occupancy fundamentals with achievable entry pricing, supporting sharper underwriting on both the equity and debt side.

For lenders assessing exposure to residential-for-rent developers, tracking planning pipeline health, JV structuring patterns and forward-sale terms across the sector offers an early read on where financing demand — and risk concentration — is likely to build next.

Outlook

With Savills forecasting an 18% rise in UK real estate investment volumes in 2026 and both BTR and PBSA expected to hold their share of that growth, the direction of travel looks fairly clear: institutional capital continues to prize contracted, professionally managed income over cyclical sales exposure. Deals like Watkin Jones' Stratford, Glasgow and Bristol joint ventures show how developers are adapting funding structures to keep pace with that demand. The next test will be whether easing debt costs and pipeline-focused government schemes are enough to convert the sizeable backlog of consented BTR and PBSA units into homes and beds delivered on the ground.