UK Real Estate: Strategies, Risks and Comparative Insights
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Zain Karbani
Investment Manager | Real Estate
September 15, 2025 | 5 min read
Real estate is often discussed as if it were one single market. Investors talk about “property” in the same breath, whether they mean a residential property, a logistics warehouse, or a student accommodation block. In reality, these are all different sub-classes within real estate with distinct drivers, risks, and outcomes. A retail shop landlord in Manchester will face very different challenges to an owner of a prime central London apartment, just as a logistics developer has to deal with entirely different issue to a retail landlord. Grouping all real estate together obscures opportunities as well as the risks. Some strategies have shrunk under tax pressures, whilst others have matured into institutional staples. New niches are emerging that blend resilience with yield. Understanding these differences is critical for investors deciding where to allocate capital today.
The UK property market is navigating a very different landscape compared to just a few years ago. The ultra-low-interest rate environment is firmly behind us. With the Bank of England base rate at 4.5% in mid-2025, financing costs remain far higher than the levels seen through the 2010s. Inflation has moderated, but at 3-4% it remains above target. The result is higher cost of capital and a more demanding hurdle rate for investors. Yet these headwinds co-exist with powerful structural drivers. The housing market continues to suffer from chronic undersupply, while demographic trends continue to push demand for student housing, rental apartments, and urban living. In commercial property, some segments are structurally challenged, such as regional offices, while others like logistics are underpinned by long-term demand drivers. Policy changes are adding further complexity. Individual landlords face heavier taxation, from the 3% SDLT surcharge (rising to 5%) to the removal of full mortgage interest relief. Energy efficiency standards are tightening, with rental homes needing EPC rating C by 2028, and commercial buildings expected to achieve EPC B by 2030. Meanwhile, political attention on affordability, overseas ownership, and short-term letting regulations creates further uncertainty.
Against this backdrop, investors are increasingly asking: which strategies still justify capital allocation, and how do they compare?
Definition: Buy-to-let is the traditional model where an individual buys a house or flat and rents it out on a standard tenancy agreement, earning rental income and hoping for long-term price growth.
For much of the past two decades, buy-to-let was the default entry point into real estate investing. Individual landlords could purchase a flat or house, finance it with a mortgage, and earn a steady yield while riding capital appreciation.
Today, the picture is very different. Gross yields remain attractive on the surface: Hamptons reports average rental yields across England and Wales at 6.3% in 2024, close to decade highs. Rents are climbing fast as supply dwindles; a direct result of landlords exiting the sector. But net yields for leveraged investors are being eroded by high borrowing costs and punitive tax treatment. Section 24 of the Finance Act introduced in 2015 has prevented landlords from deducting mortgage interest against income, substantially increasing tax bills for those with debt. When combined with the SDLT surcharge and upcoming energy efficiency compliance costs, many small landlords are finding the model uneconomic.
The result has been a wave of disposals. In 2024, landlord sales outnumbered purchases by four to one (Hamptons). Surveys show over a third of landlords plan to reduce their portfolios within five years (NRLA). Crucially, most of these sales are to owner-occupiers, shrinking the supply of rental stock and pushing rents higher.
In investment terms, buy-to-let has shifted from being a broadly accessible wealth-building strategy to a niche play viable only for cash-rich investors or those operating at scale. Compared to institutional strategies such as build-to-rent or student accommodation, the risks are higher, the tax regime harsher, and the operational burdens more significant.
Simple definition: Build-to-Rent (BTR) refers to entire apartment blocks developed specifically for renting out, owned and managed by professional landlords rather than sold off individually.
Where private landlords are retreating, institutional capital is advancing. Build-to-Rent schemes are purpose-built blocks of apartments designed for long-term rental and managed professionally. They offer modern amenities, concierge services, and professional management, catering to a growing population of renters by choice and necessity.
The sector has expanded rapidly from a standing start a decade ago. By early 2025, the UK had 127,000 operational BTR units, with another 70,000 under construction (Savills). Investor appetite remains strong: £2.2bn was committed in the first half of 2025 alone. Yields vary by geography. In London, net yields typically stand at 4-5%, reflecting higher land values but also premium rents. In regional cities such as Manchester, Birmingham, and Leeds, 5-6% yields are common, alongside strong rental growth prospects. Crucially, the economies of scale and professional management give BTR operators an efficiency advantage over fragmented private landlords.
The main risks lie in development and lease-up. Rising construction costs and higher financing rates slowed new project starts in 2023. However, with rental demand structurally strong and private landlords retreating, absorption of new stock has been robust. For investors, BTR offers long-term, inflation-hedged income with lower volatility than many commercial sectors.
In comparative terms, BTR represents the institutional evolution of buy-to-let: better tax treatment, greater scale, and more resilience. Where BTL is contracting, BTR is expanding.
Simple definition: Purpose-built student accommodation (PBSA) consists of modern blocks of housing specifically for university students, usually with on-site management and all-inclusive rents.
PBSA has established itself as a mainstream asset class. The fundamentals are compelling. UK higher education demand is rising: UCAS forecasts a 30% increase in applicants by 2030. International student numbers, particularly from China and India, remain strong. Yet supply is constrained, leaving many students in substandard housing. JLL estimates an additional 450,000 PBSA beds are required by 2030 to meet demand.
Performance has been impressive. Occupancy consistently runs at 97–99% (Empiric, 2024). Rents rose by 8–9% in 2023/24, driven by competition for scarce beds. CBRE reports total returns of around 9-10% in 2024, outpacing many mainstream sectors. Net yields typically range from 6-8%, higher than traditional residential.
PBSA also benefits from favourable tax treatment. Purchases are exempt from the 3% SDLT surcharge, student tenants are council tax-exempt, and corporate ownership allows full mortgage interest deductibility. For investors, management is hands-off: professional operators run the assets, taking a cut but removing day-to-day landlord burdens.
Risks are narrower than in diversified residential. Demand is tied to university intake, and assets can be relatively illiquid; resale markets are mainly institutional. But the structural undersupply, inflation-linked rental uplifts, and resilience through economic cycles make PBSA one of the strongest comparative plays in the current market.
Prime Central London (PCL); Mayfair, Knightsbridge, Chelsea, is its own category.
Values remain about 20% below their 2014 peak, after years of Brexit, tax changes, and pandemic disruption. Rental yields are low (2–4%), but rents themselves have surged with the return of expats and limited supply.
Two things are shaping PCL today:
PCL is less about yield, more about long-term capital preservation and a global store of value.
Serviced apartments blur the line between residential and hotels: fully furnished flats with hotel-style services, let out short or medium-term.
Why investors like them:
Demand is being driven by post-pandemic shifts: corporate travel is down, but leisure and blended “b-leisure” travel is booming, especially from the US and Gulf. Visitors are staying longer and want space, and serviced apartments deliver exactly that.
Risks remain: operational intensity, regulatory scrutiny on short-lets, exposure to travel cycles, but institutional acceptance of the sector has risen sharply.
Vacancy hit 10% in 2024, the highest in two decades. Transaction volumes collapsed, with not a single £100m+ deal in H1 2024.
The split is stark.
Grade A ESG-compliant offices are still leasing up at record rents. In fact, prime central London office rents grew by up to 8% in the past year, according to PropertyWire (Sept 2025). Tenant demand is tightening for the very best buildings, especially in the City and West End, where supply of high-quality, sustainable space is limited. Landlords of top-end offices are capitalising on this flight-to-quality, with some leasing deals achieving all-time highs in headline rents.
By contrast, secondary stock faces obsolescence unless retrofitted to EPC B by 2030. Older, less sustainable offices continue to suffer from weak demand, falling rents, and higher vacancy, effectively creating a two-tier market.
Prime yields are around 5%, while secondary assets are trading at 7-8%. For contrarians, there are opportunities to reposition or repurpose discounted stock, but compared to other sectors, offices still carry more uncertainty given structural shifts in working patterns.
Retail property, long written off, has shown signs of recovery.
Yields of 5.8–6% look tempting, but structural risks remain: e-commerce penetration (~30%) and weak consumer spending. Success depends on asset selection — grocery-anchored retail parks and prime high street locations look resilient, while secondary malls still struggle.
Industrial has been the standout performer of the last decade, driven by e-commerce and supply chain reshaping.
Industrial now provides a solid blend of long leases, inflation-linked rent reviews, and defensive cash flow. It may no longer be a “growth rocket,” but it has cemented itself as a core allocation.
Another area gaining attention is healthcare and senior living real estate.
These sectors are less liquid and require specialist expertise, but they provide bond-like income streams with demographic tailwinds. For many institutions, they play the role of a defensive diversifier.
Real estate isn’t one market, it’s a spectrum of strategies. Some are cyclical, some defensive. Some are yield-focused, others are about long-term capital growth.
For investors, the key is matching strategy to objectives:
In a world where risk-free cash yields 4%, investors need real estate strategies that can clear that hurdle. That means understanding the differences, not treating property as one big bucket.