The topics of this article were originally discussed during our ‘Living Sector Breakfast Seminar: Risk, Resilience and the Future of Development’, on 12 February 2026. Unless stated otherwise, all data cited in this article has been sourced from Knight Frank research.
Various tailwinds and headwinds are shaping the current living sector landscape, with some sub-sectors faring better than others.
Below we examine these issues, and explore how developers and investors alike can remain agile for 2026, and beyond.
How are living sector investors approaching 2026?
For 2026, living sector remains high on the list of where global real estate investors are planning to allocate capital. Almost two-thirds of investors will target this area, second only to office spaces (69%). And of these prospective living sector investors, 46% are exploring multifamily housing (MFH) developments.
However, this doesn’t paint the whole picture. From 2025, interest in single-family housing (SFH) projects has jumped from 17% to 31%. And in 2025, of the total build-to-rent (BTR) market, investment in SFH overtook that of MFH projects – the first time this has occurred.
Despite growing interest in some living sector areas, investors may be discouraged by the shrinking of expected yields. Instead, fixed yields of over 4% on UK 10-year Government Gilts may present itself as a more attractive area for deploying capital.
Furthermore, compared to Europe, the UK may struggle to attract and raise capital as freely. As of February 2026, the Bank of England kept interest rates (opens a new window) at 3.75%, in comparison to the European Central Bank having its benchmark interest rate at 2.00% (opens a new window). The wide margin between central bank base rates underlines how the Eurozone is currently incentivising international investors with more attractive debt.
Factors affecting purpose built student accommodation (PBSA) demand
Overall, investors are remaining cautious when engaging with the PBSA sector. Among various factors, a rebalancing of the market is continuing in the aftermath of a period of unsustainable growth between 2020 and 2023.
From 2017 to 2026, the number of students intending to live at home for the first year of their studies has steadily rose from 26% to 33%. This has stemmed from various reasons, such as inflation and cost of living concerns. Demand fluctuations also greatly vary by location, with student applications showing a ‘flight to quality’, as a growing percentage of domestic undergrad applications focus on Russell Group institutions (opens a new window).
Furthermore, student visa changes (opens a new window) announced in early 2024 are beginning to affect international postgraduate applications and limit PBSA demand. Overseas students are now prohibited from bringing dependents, which has heavily contributed to an 11% reduction in postgraduate student numbers year-on-year for the 2024/25 academic year.
However, despite the various headwinds inhibiting demand for PBSA beds, 79 transactions were recorded in 2025 within the sector; this represents the highest annual number recorded.
Building Safety Regulator (BSR): a turning tide?
Despite difficulties navigating the Building Safety Act (BSA), and particularly the Gateway2 stage, some positives are beginning to emerge as timelines recede and processes speed up.
On 27 January 2026, the BSR officially moved to a standalone organisation (opens a new window). And as a commitment to reduce timelines, more staff with the required technical knowledge were introduced as a dedicated resource to judge submissions.
This has also opened early engagement between parties, enabling developers to present their designs and discuss intricacies with experts – instead of just submitting documents without discussion.
The data cited at the time of our event shows that the Gateway2 process is improving with decision timelines falling from 37 weeks to 13 weeks, and ‘legacy cases’ more than halving between early October and late December of 2025.
Considerations for refurbishing legacy assets
To satisfy safety requirements when refurbishing assets, solutions for each design must be heavily nuanced. For the best results, opening discussions with all stakeholders, as early as possible in the process, is imperative.
Strategies for fire safety have emerged as a key challenge for remediating existing living sector stock. Among other stipulations, residential spaces must have entirely non-combustible façade materials, a second staircase to ensure safer evacuation, and an adequate sprinkler system.
In particular, much of legacy PBSA stock is second and third generation from the late 1990s. These assets may have been neglected and now require significant remediation work to bring it in-line with modern standards.
Pivoting to co-living schemes
As 2026 progress, co-living schemes are likely to increase as some developers pivot away from PBSA. Co-living assets share many similarities with high-end PBSA developments, and as a ‘high-density’ BTR scheme, can provide an antidote to developers with stranded student-based assets.
For investors, this could provide a more stable source of income, and reduce pressures associated with date-based targets, such as the start of an academic year. Additionally, unlike PBSA, co-living sites are not restricted to the student demographic, opening spaces up to more renter cohorts.
However, developers must be cognisant of associated costs before deploying capital – if you could easily secure tenants for a specified amount, would you also be able to accordingly remediate/construct the asset to then generate a profitable yield too?
For further information, please visit our Living Sectors (opens a new window) page or contact a member of the team.
