Colliers has predicted that the operational real estate sector in the UK is set to experience a growth in both investment opportunity and occupational demand as various demographics come of age.
With baby boomers reaching retirement age, and a rising student population, operational assets at both ends of the spectrum will experience a boost, as well as the private rented sector. In our Bedrock & Boosters research on operational real estate, we also highlights how sensible tech adoption will create significant opportunities across the entire sector.
Retirement living is set to benefit from UK society being on the verge of the largest transfer of wealth in history. With their millennial offspring struggling to get on the housing ladder, the baby boomer generation is now looking to release equity from their homes and move into retirement living, providing a swathe of new customers for this fledgling sector.
Lee Layton, head of Operational Markets Research at Colliers, comments: “One of the biggest factors impacting the retirement living sector is the profile of the asset rich baby boomer generation. There’s a real opportunity for investors to tap into three core elements of this generation: sheer numbers, wealth and behaviour. The oldest of this generation are now 75, which is around the same age as those who plan to move into retirement living typically do so, but inevitable kick-back will come from ingrained current behaviours. Overcoming the Brits’ love for independence and privacy, along with the ‘you’ll have to take me out of here in a box’ attitude that pervades the generation, is a battle that offers great potential rewards. Only the offer of a significant improvement in life quality will overcome this.”
Demand for student accommodation is also set to be turbo-charged by demographic factors both at home and overseas states the firm. In the UK, participation in higher education has rapidly increased with more than half of all young people now going into higher education. This increase is multiplied by an overall growth in the number of 15-18 year olds, which will increase by 13 per cent from current levels by 2030 (an additional 470,000 people).
Looking further afield there is a burgeoning middle class developing in China and India and by 2035 there will be an additional 45 million households in these countries alone with a household income more than $70,000. Combine this with the UK Government’s target to attract 600,000 international students by 2030 and there are clear and significant demand tailwinds for UK education, with the link to PBSA obvious states Colliers.
Paddy Allen, head of Operational Capital Markets at Colliers, says: “The potential that sits within operational real estate makes it one of the most exciting sectors in real estate. There are many segments of the market that have considerable untapped opportunities. It’s not just in the retirement and student sector where we see growth potential but also in BTR which represents just a fraction of the wider private rented sector. Total BTR pipeline and built stock still only accounts for 3.7 per cent of PRS. BTR will of course, never account for 100 per cent of the private rented sector, but with around 1-in-10 homes in Germany being owned and let-out by institutional investors, examples of how much the sector can grow are aplenty.
“Another considerable opportunity for growth comes in the technological developments in the sector. In the near future, we expect to see a large boost to returns in operational real estate from the adoption and increased availability of tech solutions. With these kinds of assets being intrinsically linked to the activities within the four walls of the building itself, the potential to capture future tech-enabled efficiencies is great."
Lee adds: “The sheer volume of the moving parts in operational real estate has historically been one of the factors putting potential market participants off. Advancements in technology mean that this is now seen as less of a negative and more of a positive, enabling cost reductions and boosting bottom lines through clever solutions.
“Over in the US, the multifamily market is experiencing real tech upsides from the adoption of tenant community platforms. Often in the form of an app these platforms enable ancillary income up to the equivalent of 10 per cent of rent roll through providing linked benefits to the local community through discounts at local stores, restaurants and businesses.”