2023 is a promising year for UK residential real estate

Jan 27 | 5 minutes read
2023 is a promising year for UK residential real estate

As the UK residential real estate market continues to struggle, politics, alliances, and place-making will dominate in 2023. Kwasi Kwarteng's uncosted expansion plan last autumn continues to affect the market. While the variety of mortgage programs available to buyers has rebounded and rates are progressively returning to more typical ranges, it is apparent that the mainstream residential market will experience a period of lower house price rise. This will affect volume house builders this year.

However, several prominent analysts are optimistic about the situation in the medium term. The Smithfield proposal in Birmingham and the Silvertown scheme in London's historic docklands are just two examples of upcoming huge strategic development areas in and around major cities across the UK. Both will have a major effect on the city's appearance because they are large mixed-use developments with a focus on housing and are part of larger urban renewal efforts.

We are also seeing a trend toward greater densification of housing in city centers, particularly in taller buildings, particularly around transportation hubs and in satellite towns, as central government and local governments investigate the repurposing of town centers and high street units more broadly, which has been accelerated in no small part by the pandemic and the shift in commuter/working patterns. As part of these urban mixed-use projects, there are chances for residential developers to acquire land and build new homes.

The idea of place-making is central to many of the developing regeneration projects, with its focus on the design, construction, and maintenance of vibrant new communities through public-private partnerships. We anticipate an increase in creative partnerships between house builders/residential developers/institutional investors on the one hand and local governments/major registered housing providers/public financing bodies on the other in 2023.

Collaborations between the public and commercial sectors often yield positive results for both parties involved. They can provide developers and builders more confidence in the market by guaranteeing supplies, such as the release of public land for construction. Increasingly essential to scheme masterplans is the delivery of affordable houses, and housing associations can better achieve their goals in this area by collaborating with a developer and house builder with experience promoting sites through the planning process and delivering development. Investors are increasingly looking to the affordable housing industry because it offers a promising alternative to traditional commercial assets, where returns may be more difficult to achieve.

And because the interests of the numerous parties might converge on a single goal, JVs may qualify for infrastructure and affordable housing support from organizations like Homes England, the federal government, or even the combined authorities.

While 2023 will see a decrease in the construction of conventionally large numbers of houses, we anticipate a rise in demand for niche segments of the house market:


Build to rent:

Some would-be buyers may be discouraged by factors including the rising cost of living and mortgage payments, and may opt to rent instead. Investors in BTR real property can now take advantage of this situation. Land prices remain a worry for new developments and pose a danger to their profitability, and the high cost of materials and other construction expenditures that have been affecting the entire real estate sector has not spared BTR providers. Because rent increases are the primary tool BTR providers have for addressing viability concerns, it is crucial to strike a balance between allowing rents to reflect rising costs and keeping them within reach for people who are already struggling to make ends meet.

Many institutional funds and private equity companies perceive opportunities in connection to build-to-rent-for-retirement (BTRR) assets, therefore the BTR market is also a route through which we anticipate increase in investment in 'later living' housing.

We anticipate that the availability of later living accommodations for rent will also be included as part of mixed tenure private schemes, which are schemes in which buyers also have the choice of accessing the property through traditional long leases or shared ownership models. This is because some residents prefer not to be tied into purchasing, especially given the likelihood that deferred management fee levels will increase.

Along these lines, we anticipate a rise in investor interest in regards to housing that is both affordable and suitable for later living. There is a possibility that operators will have the opportunity to become registered as affordable housing providers and to receive funding for schemes from Homes England.

In order for the residential real estate market in the UK to thrive, the government needs to provide a policy and regulatory framework that is stable, long-term, encourages investment, and facilitates rapid development. We anticipate that housing policy will continue to be at or near the top of the political agenda as 2023 progresses. This is because the housing shortage in the UK is expected to continue leading up to the next general election, which is widely anticipated to take place in the fall of 2024. Residential developers are likely to seek assurances from both current and would-be policymakers regarding long-term housing targets and housing supply requirements in local plans, for example. Additionally, residential developers are likely to seek reforms of the planning system that have been overdue for some time.


Housing for College Students

As demand decreases in primary commercial real estate markets, the student housing market is also likely to attract the attention of real estate investors. With the ability to rebase rents annually to achieve the desired returns, student housing offers investors stable cash flows if the right product is in the right location.

It is anticipated that the demand for entry-level, budget-friendly student housing will increase in tandem with the rising number of students until 2030. For investors, the best returns will come from 'turnaround projects' that involve updating and repositioning 'first generation' student accommodation assets.

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