The Build to Rent Market
Whilst macro-economic factors have inevitably had an impact on the BTR investment market, the counter cyclical dynamics of residential rental investments and the strong drivers that remain; high occupancy, rental growth and the demand / supply imbalance, means sentiment has remained resilient.
More forward funding transactions are starting to execute in both multi-family and SFH sectors. L&G have agreed to fund Glenbrook’s £140m Whitehall Riverside, Leeds BTR scheme which comprises 500 apartments.
Countryside Partnerships and Sigma Capital Group have agreed two deals to deliver 190 BTR homes for just under £80M with two of its major mixed-tenure schemes in Clapham Park and Hemel Hempstead. Aviva and Packaged Living have agreed to forward fund 170 SFH homes in Ipswich being developed by Galliard Homes. Bow Square in Southampton, Patrizia’s 279-unit BTR scheme which opened in 2017, is being purchased by new entrant to the UK BTR market CompassRock International for £60M. PGIM have acquired 918 SFH homes from Goldman Sachs which encompassed 15 schemes across the north west.
The British Property Federation’s (BPF) latest figures show a total number of units either complete, under construction or with planning standing at 242,548. Numbers in the regions continue to grow at a faster rate than London, accounting for approximately 151,276 with 91,272 in the capital.
As we progress through 2023 we are seeing more investor activity across the sector, particularly compared to the latter stages of 2022 and early weeks of this year. Core investors are gaining more confidence in the stability of the residential market and many are actively pursuing new opportunities.
More housebuilders are now considering the BTR route on sections of their landholdings, as a result of the forecasted slowdown in house sales and pricing over the next 12 months.
It is likely that the higher cost of borrowing for mortgages and continued build cost challenges is only going to exacerbate the imbalance of supply / demand across the BTR sector. We believe the regions will remain particularly attractive, aided by operating assets in those areas showing strong occupation and rental levels – most schemes are over 95% let.
Funding yields remain resilient for well-designed multi-family BTR stock in prime, practical locations, underpinned by the strong performance of operating schemes. Although inflation figures remain high, market sentiment is of the view that reduced demand will likely stabilise build costs towards the latter two quarters of the year. In London and strong south east locations, NIYs range from 3.50% to 4.00%, with major regional centres at 4.00% to 4.50%. Secondary locations are in the region of 4.50% to 5.00% NIY. We expect single-family housing NIYs to remain at 4.00 to 4.25% across the UK.