Investec Real Estate’s bi-annual Future Living survey

Political instability and pre-Budget uncertainty, the higher-for-longer interest rate environment and the negative impact of the Building Safety Act has damaged investor sentiment towards UK commercial real estate, according to Investec’s fourth Future Living report, which surveyed 50 global institutional investors active in the UK Living sector representing over £300 billion of AUM.

Three-quarters of respondents (76%) said that political uncertainty has undermined market confidence, while six in ten (60%) warned that the UK risks losing ground internationally without faster interest rate cuts.

Despite the market headwinds, investors were positive on the demographic and supply-demand drivers underpinning the Living sector. On average, 84% expect to increase or maintain their allocation to the Living sector over the next five years.

The findings reveal the extent to which regulation – in particular the Building Safety Act (BSA) – has negatively impacted real estate strategies and operations. Nearly half of respondents (46%) cited regulatory uncertainty as an obstacle to investing in non-owner-occupier residential real estate, nearly double the 28% reported in the previous report in 2023.

Of the 92% of investors who said the BSA was having an impact, the biggest issues reported were higher compliance costs (68%), increased administrative burdens (60%) and extended project timelines (54%). As a result, three-quarters (74%) of investors have adjusted their real estate strategies.

Against a backdrop of declining new home delivery, almost half of these (46%) have shifted focus away from new development, pivoting instead towards refurbishing or repositioning existing assets. More positively however, 88% of investors did not consider the Building Safety Act a major obstacle to the long-term growth of non-owner-occupied residential real estate in the UK.

Other key findings included:

• The financing backdrop has significantly improved, with only 22% now viewing it as an obstacle, down from 45% in 2023. 
• Planning is now viewed as an obstacle to growth by 56% of respondents, up from 37% in 2023.
• Construction cost inflation (74%) and the higher-for-longer interest rate environment (70%) were cited as the top barriers to growth, although the latter was down from 76% in 2023.
• Half of investors (50%) said the recently enacted Renters’ Rights Act would lead them to increase exposure to the later living sector, with around the same number (46%) planning to decrease investment in single-family rental over the same period.

Jonathan Long, Head of Corporate Real Estate Lending at Investec, 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 c. 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.”

These findings have been revealed in Future Living 4, a global survey of 50 institutional investors representing over £300 billion in assets under management, commissioned by Investec’s Real Estate team, a leading UK provider of investment and development finance.

To view the full report, visit: https://www.investec.com/en_gb/focus/future-living/2025-key-findings.html