"With pre-Budget uncertainty compounding the challenging fiscal backdrop and the lack of any real progress around proposed reforms to areas such as planning, it’s no surprise that investors are feeling more cautious"
- Jonathan Long - Investec Real Estate
Global investors representing over £300 billion of assets are signalling that political instability and regulatory pressures are affecting the UK’s appeal as a commercial real estate destination.
Investec Real Estate’s bi-annual Future Living survey, which examined sentiment among 50 global institutional investors active in the UK Living sector, found that three-quarters of respondents believe political uncertainty has weakened market confidence. In addition, six in ten warned that the UK risks losing ground internationally without faster interest rate cuts.
Regulatory concerns remain significant
The survey highlights the negative impact of the Building Safety Act (BSA) on real estate strategies. Nearly half of respondents (46%) cited regulatory uncertainty as an obstacle to investing in non-owner-occupied residential property, almost double the 28% reported in 2023.
Of the 92% of investors who said the BSA was affecting their operations, the main challenges were higher compliance costs (68%), increased administrative burdens (60%) and extended project timelines (54%). As a result, 74% of investors have adjusted their real estate strategies.
Almost half of these investors (46%) have shifted focus away from new development, instead concentrating on refurbishing or repositioning existing assets. Despite these challenges, 88% did not view the Building Safety Act as a major barrier to the long-term growth of non-owner-occupied residential real estate in the UK.
Sector fundamentals remain strong
Investors remain confident in the demographic and supply-demand drivers underpinning the Living sector. On average, 84% expect to increase or maintain their allocation to the sector over the next five years. Access to finance has also improved since 2023, with only 22% now viewing it as an obstacle, down from 45%.
Construction cost inflation (74%) and the higher-for-longer interest rate environment (70%) were identified as the top barriers to growth, though concerns over interest rates have eased slightly from 76% last year. Planning processes are increasingly seen as a challenge, cited by 56% of respondents, up from 37% in 2023.
Half of investors (50%) said the recently enacted Renters’ Rights Act would encourage them to increase exposure to the later living sector, while around the same proportion (46%) plan to decrease investment in single-family rentals.
Jonathan Long, head of corporate real estate lending, said, “This year’s Future Living report clearly identifies the challenging market backdrop and regulatory headaches currently facing investors in the UK Living sector. With pre-Budget uncertainty compounding the challenging fiscal backdrop and the lack of any real progress around proposed reforms to areas such as planning, it’s no surprise that investors are feeling more cautious."
“However, there are grounds for optimism. With several of the headwinds viewed as near-term only, and the fundamentals of the UK Living sector – compelling long-term demographic demand and a chronic shortage of high-quality, purpose-built homes – remaining strong, investors are continuing to look through the noise and are positioning themselves for a recovery in 2026. This resilience has been a consistent theme across the previous editions of our three Future Living reports, which were published during some of the most turbulent market conditions in recent memory."
“Investec shares this cautiously optimistic outlook. While the operating environment continues to evolve, our proposition is unchanged. For around 30 years, we’ve been deeply invested in providing tailored relationship-driven lending, combining speed, flexibility and structuring expertise with cross-bank solutions, giving clients in the mid-market the certainty and support they need to grow."
"As the sector navigates this period of transition, we remain committed to supporting our borrowers, helping them adapt to new regulatory requirements and continue delivering best-in-class real estate across the Living, office and logistics sectors.”
