The Build to Rent Market
Overview
The UK Build to Rent (BTR) sector is seeing a marked increase in activity in comparison to 2023, 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 as the year unfolds. 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, 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 Aviva and Packaged Living's investment of approximately £85M in two SFH schemes with Dandara in Milton Keynes, and their funding of 121 homes in Ebbsfleet Garden City with Chartway, Hines’ £100M forward funding of Olympian Homes’ 519 unit scheme in Newcastle, Grainger's strategic acquisition of The Astley in Manchester, a stabilised BTR scheme offering 135 units, from M&G and L&G’s purchase of 41 BTR homes in St Neots.
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 263,694 – this is a 10% year on year increase. Numbers in the regions continue to grow at a faster rate than London, accounting for approximately 159,498 with 104,205 in the capital. There has also been a 141% year on year increase in the number of SFH under construction.
Clarity has been provided regarding new regulations that mandate dual stair cores for residential buildings over 18m by the Government, with guidance to come into force from September 2026. Whilst providing transparency to developers, this has been a requirement for the bulk of investors for the past ~18 months and the market was already adapting.
We continue to expect investors prioritising progressed, best quality MF 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 2024 to be a noticeably stronger year for new starts on sites than 2023.
In London and strong south-east locations, funding NIYs range from 4.00% to 4.50%, with major regional centres at 4.50% to 4.75%. Secondary locations are in the region of 4.75% to 5.00%. SF funding NIYs are around 4.25% in the south-east and 4.50% in the prime regions.