BTR Market Update
BTR has proven itself as a counter-cyclical asset class showing strong resilience during downturns and outperforming other investment sectors. Investors continue to be attracted to the sector for several reasons including:
- Resilience of rental market in times of economic uncertainties
- Chronic shortage of rental properties
- Growing tenant demand
- Growth performance and forecasts
BTR investment was initially almost exclusively concentrated on multi-family housing (MFH) in urban areas and, whilst MFH schemes still remain in high demand, investors are also increasingly moving their attention to single-family housing (SFH) schemes to capitalise on a significant market opportunity and to diversify their private rental portfolios.
Single-family housing remains in the early stages of evolution when compared to the maturing UK MFH market, however, is a rapidly growing sector. Rental houses can be delivered alongside for-sale housing on housebuilder sites to increase the rate of delivery without additional competition, whilst also offering exposure to varied demographics and geographies.
Supply
According to latest statistics released by The British Property Federation (BPF), there are currently over 115,000 complete and operational BTR homes in the UK and an estimated future pipeline of approximately 146,000 units. Supply in the regions continue to grow at a faster rate than London with approximately 99,550 units either built, in construction or in planning in London and approximately 162,320 units in the regions.
BTR Supply by Planning Status (BPF)
Complete
Under Construction
In Planning
Total
Single-Family Housing Supply (BPF, Jul'24)
Complete
Under Construction
In Planning
Total
Who is Active / Headline Deals
The UK Build to Rent sector continues to demonstrate increased activity within both the single-family and multi-family housing markets.
This uptick is a further display of confidence in the resilience of the BTR market, even in the face of broader economic uncertainties. The current investment landscape is characterised by a proactive approach from investors and developers to find an investment solution in a challenging environment.
Viability, particularly in multi-family, is unsurprisingly difficult in a sector that, although showing some maturity, is still very much in the development stage.
The persistence of a higher cost of capital is one of the core challenges to the viability of BTR projects. However, there is a sense of optimism within the industry, with stakeholders hopeful for an improvement in conditions in the second half of the year. This optimism is predicated on the anticipation of a decrease in the cost of capital, which would improve the financial feasibility of BTR schemes.
We are seeing continued engagement with investors from housebuilders in response to the currently slower individual private sales market, which provides a strategic avenue to maintain sales velocity and capital inflows.
The market's robustness is evidenced by the sustained rental growth and high occupancy rates observed across all BTR schemes.
Recent evidence of market activity include Heim Global Investment Partners forward funding of McLaren Living’s BeckYard, a 375-unit MFH scheme in Leeds. Allsop advised McLaren Living on the transaction. Aviva Investors and Packaged Living have agreed a £55M forward funding with Barratt Homes for 101 SFH units in Cambridge. Vistry Group has agreed to sell a portfolio to Blackstone Real Estate and Regis Group for £580M, which will comprise a total of ~1,750 homes. Placefirst have partnered with Miller Homes, bringing forward a SFH scheme in Widnes.
Direction of Travel
We continue to expect investors prioritising progressed, best quality multi-family assets with strong, experienced development partners. Yields will be robust for best-in-class schemes, with secondary locations more challenging due to (but improving) viability constraints. As inflation continues to stabilise and order books reduce, contractor pricing should be more conducive for development. We expect H2 2024 to be noticeably stronger for new start on sites than H1 2024.
Strong rental growth and high occupancy in suburban areas is likely to continue as the supply / demand imbalance becomes more acute, continuing to promote SFH as an attractive investment proposition.
Allsop BTR NIY Table