The Build to Rent Market
Overview
The UK Build to Rent (BTR) sector continues to demonstrate increased activity within both the Single Family Housing (SFH) and Multi-Family (MF) 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.
Who is Active / Headline Deals
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 from housebuilders with investors, in response to the currently slower individual private sales market, to provide 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, Leeds; a 375-unit BTR scheme. Allsop advised McLaren on the transaction. Aviva Investors and Packaged Living have agreed a £55M forward funding with Barratt Homes for 101 SFH units in Cambridge. Vsitry 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
The British Property Federation’s (BPF) latest figures show a total number of units either complete, under construction or with planning standing at 265,606 – this is a 4% year on year increase. Numbers in the regions continue to grow at a faster rate than London, having an approximate 63% share.
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 a noticeably stronger for new start on sites than H1 2024.
In London and strong south-east locations, funding NIYs range from 4.00% to 4.50%, with major regional centres at 4.75%. Secondary locations are in the region of 5.00%. Single Family funding NIYs are around 4.25% in the south-east and 4.50% in the prime regions.