After a year characterised by stubborn inflation, regulatory changes and recalibrated investor strategies, the UK living sector tops out 2025 with a tale of resilience rather than retreat.
The backdrop was one of shifting financial markets, with legislation reshaping planning, safety and taxation in a sector already attempting to navigate a backlog of macroeconomic and micro geopolitical shocks.
On the ground, this made for a general softening of transaction volumes, yet demand fundamentals remained buoyant, while new investment themes started to crystallise. Build-to-rent still monopolised headlines, while purpose-built student accommodation weathered policy uncertainty and coliving surfaced as a potential growth subsector.
Despite London’s continued status as one of the world’s top financial capitals, the market faced questions over the UK’s competitiveness in relation to themes such as open borders, tax and business growth. This uncertainty has put strain on the sector, as it attempts to navigate market sentiment among users and investors alike without clarity in a number of areas. As a consequence, investors and developers were left facing the possibility of having to make swift changes to adjust in line with market conditions. The past 12 months have cemented one rule: adaptability is the key value metric.
CoStar News has collated views from market experts to sum up what went well and what didn't this year, across the three main subsectors of built-to-rent, purpose-built-student accommodation and co-living. They also make predictions for the year ahead.
Build-to-rent
The build-to-rent sector has seen further growth this year but has struggled with delivery challenges. There was a rise in the number of homes being built, which exceeded 139,000 units, a 14% year-on-year increase, according to a report from British Property Federation and Savills in December 2025. This was fuelled by a high number of completions early in the year, but has yet to translate to new construction starts which fell by 77% from 2022, to 6,100 units this year as the sector felt the weight of rocketing build costs, regulatory hold-ups and overall market uncertainty.
This has led to a trend of completions outpacing starts over the last 12 months, which raises concerns about the supply of housing stock in the near term as demand continues to outstrip supply. The industry is now facing mounting concerns that housing targets will go unmet without urgent policy intervention.
On a quarterly basis living sector investment jumped to £3.2 billion in Q3, up 60% on the previous quarter and up by a third year-on year, according to quarterly research from CBRE. This led the BTR pipeline to hit a record £4.8 billion, as investor confidence in the sector carried through despite “a softer market backdrop”. This demand has been driven, in part, by an ongoing lack of supply, which has kept rental demand high.
The sector was in the spotlight this year north of the border after it was exempted from Scottish rent caps, which has provided potential for new investment in BTR. This resilience proved a contrast to student housing, which had a more challenging year due to changing demands and policy uncertainty.
Yet, institutional confidence in the sector remained, with significant, market-moving deals crossing the finish line in 2025 including L&Q’s monster BTR portfolio sale, which eventually sold for a reported £1.1 billion in July. Also noteworthy was Barratt and Lloyds Living's agreement for a single-family portfolio of 600 homes, forward funded for approximately £188 million.
Student housing
Investment into purpose-built student accommodation in 2025 peaked in the third quarter to hit £1.9 billion, five times higher than in the second quarter, as the subsector weathered operational and political headwinds, statistics from CBRE’s show.
The Universities and Colleges Admissions Service found acceptances to study at universities were up 3.7% year-on-year and international growth was up 5.5%, but this came amid policy changes through the government’s introduction of an international student levy which rocked the market, as investors, developers and operators were left wondering if they would see international students would return to the UK’s institutions in their usual numbers. In addition, a rising cost of living and concerns about affordability somewhat tempered sentiment in the sector, according from BNP Paribas Real Estate.
International capital was increasingly drawn to the sector, with a rise in the number of new entrants to the UK. New capital sources accounted for 44% of total portfolio transactions this year so far, as they look to take a bigger slice of the portfolio pie, according to Knight Frank. The adviser expects that this will endure heading into 2026, with prime Russell Group cities remaining as hotspots.
Activity in the sector was led by QuadReal’s acquisition of the Apollo Portfolio for over £550 million and KKR’s purchase of the Curlew Capital Portfolio for a price in the region of £230 million, Knight Frank added in its report. These deals highlight an ongoing institutional appetite for scale and operational stock in a market plagued by structural undersupply. As the sector continues to draw in the money, other subsectors have emerged as up-and-coming opportunities and as strategic plays for those looking to diversify their portfolio.
Later living and coliving
Coliving and later living have begun to gain traction among decision-makers this year.
The sector began to transition from niche to mainstream this year, underpinned by increased planning support, shifting demographics and investor confidence. Leading the pack are schemes with amenities including coworking, gyms and curated social events, which are particularly popular among 20–40-year-olds, where retention and rental premiums are higher, according to Savills. This momentum is expected to continue into 2026 driven by the target demographic and market conditions as a way to offer scale and broader appeal to funds seeking diversification beyond traditional BTR and PBSA.
“The UK housing sector is entering a new phase of opportunity, providing a significant runway for growth. The £39 billion, 10-year Affordable Housing Programme, underpinned by a consumer price index plus 1% rent settlement, plus support from Local Housing Delivery Funds and the National Housing Bank, offers not only capital grant funding support but also access to lower cost debt,” Helen Collins, principal, managing director, Midlands, head of UK living and affordable housing at Avison Young, told CoStar News.
This will have a direct impact on bringing projects to fruition, which will also rely on increased partnerships and a greater mix of tenures to create functioning communities, according to Collins. She added: “This supports the ability of affordable housing providers to work with developers, housebuilders and SMEs to bring forward supply. Alongside the growing market for single family rental housing, mixed tenure sites deliver homes faster and create sustainable mixed communities. We are also helping BTR access public sector grant funding to unlock viability – which along with improving gateway approvals process, will help support more much needed development in 2026.”
Expert eye: look ahead at 2026
We asked more experts to share their thoughts on what is to come for the sector in 2026 and one thing remains clear: it's all about collaboration. They predict significant emphasis on partnerships, whether that be public and private, or otherwise, to meet housing demands.
“We anticipate a rise in strategic partnerships between developers, investors, affordable and single-family housing providers, feeding through into increased supply and activity levels from the summer of 2026. With interest rate drops on the horizon and robust government backing for housing delivery and regeneration, we are highly optimistic about our role in leveraging this policy context to accelerate delivery and create sustainable communities,” said Collins.
This view was echoed by Alastair Butcher, regional development director, Barratt London: "2025 has been a challenging year for the industry, particularly from a sales perspective. Market conditions have remained tough and buyer confidence is still subdued. The government’s recent intervention on affordable housing has been welcome, but there is more to do. Fixing demand is essential if we are to stimulate the market and give homebuilders the certainty needed to deliver the homes London requires.
The major UK property housebuilder has worked on a joint venture with Transport for London's Places for London this year. Butcher said: “These collaborative models are proving critical to bringing forward large-scale development in a difficult market."
Heading into 2026 more support will be needed to unlock development, particularly in the capital, according to Butcher, who noted the need for intervention to bridge the widening affordability gap. "Recent measures to reduce requirements on affordable housing will provide some encouragement heading into 2026, but additional action is needed to address the affordability gap facing Londoners. For many, especially first-time buyers, homeownership still feels out of reach,” he said.
"Targeted demand-side support will be essential to bridging this gap and reigniting activity in the market. With the right stimulus in place, homebuilders will be able to accelerate delivery, support London’s housing targets, and continue creating the high-quality places the capital needs to thrive,” he added.
Some shared this frustration, with the view that despite its resilience, the living sector has found itself somewhat stuck over the past 12 months due to myriad factors.
“It's been a frustrating year to be honest,” James Dunne, head of UK living at Cushman and Wakefield told CoStar News. “We've seen excellent pockets of activity but, there is that overwhelming sense of frustration that we can't be doing more."
He noted that despite the “appetite and desire” for activity across all parties in the sector there are “a number of factors” that have meant this “hasn't happened as dynamically, or as quickly, or as deeply as anybody would have liked during the course of this year”.
This is in part due to a lack of multifamily construction starts caused by sector challenges including planning, land price, construction costs, policy and legislation, according to Dunne. He noted, though, that the tide is turning as 2026 approaches: “We're at a point where we will start to see that change and we will see more activity next through the course of next year because the opportunity is so vast. If the climate continues as it is, we'll start to see people having a little bit more risk appetite. That doesn't take away all of the challenges, but it gives us an environment where people are looking to overcome [them] and we start to see things happening.”
This means a further shift as subsectors become less strictly defined and borrow elements from one another. This will be evident in some more than others as they adjust to adapt to the macroeconomic landscape. “The ability to invest in single family housing has been higher this year than it has in multifamily,” added Dunne. “But are they competing for the same money or, are they rivals to each other? I don't think they are. They're all going to be parts of a longer term and a wider solution…What we’ll see going forward is a blurring of those lines.”
The major single-family deal of the year was Northern LGPS and Local Pensions Partnership Investments' acquisition of PRS REIT's holding company bringing its entire portfolio of 5,478 single-family homes under joint ownership, for £1.1 billion.
He added: “We’ve seen a year of a mindset shift towards the paradigm of affordability. It’s about service level, it’s about more long-term ownership, it’s about providing quality products, rather than being about who has the best amenity, who has the tallest building and who can drive the highest rent.”