Who is Active / Headline Deals
Comparing the market to Q4 2022 and Q1 2023, a number of investors that were on pause are now back actively trying to progress acquisitions. It is well publicised that inflation remains stubbornly high and cost of capital has been rising which has presented viability challenges for development, however strong rental growth and high occupancy rates are compelling which has meant limited investment yield movement. The nationwide supply/demand imbalance means that the investment case remains strong and transactions are being structured considering the market challenges.
Transactions in this quarter include Savills IM funding two Single Family schemes in Rugby and Aconbury Weald with Urban & Civic totaling 149 homes, Legal & General funding Watkin Jones’ 627 unit Multi-Family scheme at Titanic Quarter, Belfast and Blackrock/Outpost acquiring Galliard Homes’ 628 unit Enclave development in Birmingham.
Direction of Travel
The British Property Federation’s (BPF) latest figures show a total number of units either complete, under construction or with planning standing at 251,208. Numbers in the regions continue to grow at a faster rate than London, accounting for approximately 155,024 with 96,184 in the capital.
Moving forward we expect to see investors chasing the 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 viability constraints. As inflation starts to be seen to be under control, inflation risk premiums in contractor fixed prices will likely reduce. Which should assist more locations becoming prime for development.
Affordability constraints in the mortgage market will only exacerbate the demand on rental stock, particularly in the Single Family housing space. Therefore, we expect to see more housebuilder interest in BTR and more capital being allocated to invest in the emerging sector.
Strong rental growth and high occupancy has also been seen in suburban areas. We anticipate this will continue as the squeeze on home ownership and the slowdown in construction will likely limit supply still further.
Funding yields remain resilient for well-designed Multi-Family BTR stock in prime, practical locations, underpinned by the strong performance of operating schemes.
In London and strong south-east locations, NIYs range from 3.75% to 4.25%, with major regional centres at 4.25% to 4.50%. Secondary locations are in the region of 4.50% to 5.00%. Single Family NIYs are between 4.00%-4.25% in the south-east and 4.25-4.75% in the regions.