THE ‘BEDS’ SECTORS

n this special section we bring together the collection of real estate investment sectors increasingly categorised as the ‘beds sectors’ – namely built-to-rent housing, student accommodation, hotels and healthcare. Whilst these sectors display distinct individual characteristics, and are often much more than places to sleep, they do display certain similarities in terms of operational risk, non-cyclical performance and (often) major supply constraints compared with demand. But we start with the biggest UK real estate sector of all – owner-occupied housing.

Owner occupied and rented housing

Home sales have fallen to a ‘new normal’ of around 1.2 million homes per year, but first time buyers have been resurgent, partly as a result of Help to Buy. House price growth will ease in 2018 to around 1.5%. Affordability constraints are biting hard which will cap first time buyer ambitions, and the surge in renting will continue. Build-to-rent developments will increasingly provide a bespoke family-friendly offer.

Student accommodation

Student numbers fell slightly in 2017, but as an investment class student accommodation continues to gain ground. 2017 volumes are up on 2016, with double-digit total returns. Portfolio deals will attract more interest heading into 2018. Planning regulation means supply is tight in London, but this is forcing innovation among operators. Student finances remain a concern for investors and operators, who are responding with more options at the budget end.

Hotels

Hotels performed well in 2017 and we expect this continue into 2018. Referendum-induced currency and inflation effects have been both a benefit and burden for hotels, and the sector’s dependence on EU workers remains a concern. Available rooms will grow at double the long-term average rate in 2018. Investment levels will remain robust, though there will be a shortage of stock available in London.

Healthcare

Investment in UK healthcare real estate continues to grow strongly. Prime elderly care remains the focus for investors, but breakthroughs in retirement living in 2017 suggest growth in these sectors in 2018.