Student accommodation has risen in terms of investor appeal as global institutions set to double investment into UK Living sector.

The sub-sector’s investor appeal soared from tenth to first in just two years, according to Investec Real Estate’s third Future Living report.

The study found 59% of respondents are optimistic about student accommodation in 2023 compared to just 27% in 2021. It replaced distribution/logistics at the top of the class.

This reflects the sub-sector’s compelling structural drivers including its decorrelation from wider economic pressures.

And the reversal of the short-term challenges it faced during the pandemic.

Institutional investors’ attitudes towards the UK Living sector are at their strongest in nearly half a decade, the report said.

The trend is being driven by a combination of the sector’s compelling societal and demographic trends which were accelerated by the pandemic and an acute shortage of product.

Almost two thirds of respondents (62%) said they expect their portfolio allocation to the Living sector to increase over the next five years compared to just 40% in 2021.

Gross investment into the sector over the next 12 months is set to double compared with the previous iteration of the report, with an average of £248m per respondent in 2023 versus £113m in 2021.

The challenge for investors will be executing on their intentions.

Higher interest rates are forcing investors to rethink their debt strategies with more considering undertaking transactions without leverage.

Almost three-quarters (71%) of respondents said that it will be more difficult to access senior debt over the next 12 months.

And 59% said they would be more likely to undertake a real estate transaction without leverage compared to a year ago.

The picture is far less rosy for other sectors with the future of offices and retail highly uncertain.

Almost half (48%) of investors plan to decrease their allocation to offices over the next 12 months and 40% plan to decrease their allocation to retail.

Attitudes towards sustainability remain complex. Three-quarters (77%) of respondents say that recent market volatility and economic uncertainty has relegated sustainability down investor and corporate agendas.

Seventy-eight percent of respondents are likely to seek sustainability-linked financing over the next 12 months.

This shows that they still recognise the benefits of improving the green credentials of their portfolio.

Despite plenty of talk about ‘Levelling Up’, London is still by far the most popular location for investment in Living.

Although 79% of investors are allocating more capital outside London than they were 12 months ago.

The only asset class where London was topped was single family rental where respondents favoured Manchester.

Investec Real Estate head of corporate lending Jonathan Long said: “Investors have been drawn to both the strong rental growth prospects and the valuation resilience.

“Comparing the findings from our third Future Living report with its previous iterations has enabled us to map a number of the trends driving investor decision making. These latest insights align with what we continue to see as a business with investors looking past the near-term market volatility at the Living sector’s compelling fundamentals.”

The report findings came from Investec’s survey of 50 global institutional investors representing £442bn in assets under management.