The Build to Rent Market
Overview
The UK Build to Rent (BTR) sector is 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 for development opportunities in a challenging environment. This is supplemented with an increasing but still modest number of operational assets coming to the market, particularly first-generation schemes.
Viability for development, particularly in MF remains challenging, however improving. The stipulations of the Building Safety Act and in particular the Gateway provisions have added an extra layer of process for developers. This combined with the abolition of Multiple Dwelling Relief (MDR) and the requirement of a second means of escape, has meant significant design and financial challenges. However, the sector is robust, with developers and investors working collaboratively to find solutions.
Who is Active / Headline Deals
Whilst a reduction in interest rates in August started a move in the right direction, cost of capital remains comparatively high and is one of the core challenges to the viability of BTR projects. There is a sense of optimism within the industry of further rate cuts, which will assist in continued improvement of the investment market into 2025. There has been a noticeable uptick in engagement and activity across the investment market since September.
Recent market activity includes Kennedy Wilson and CPP Investments, who have formed a joint venture to create a £1Bn SFH portfolio in the UK. Allsop advised the JV on one of the two seed assets at Forster Park, Stevenage which is being delivered by Miller Homes.
Greykite European Real Estate Fund I and Gatehouse IM have formed a £750M joint venture to also invest in SFH which has been seeded by a portfolio of 11 Persimmon sites in Yorkshire, the Midlands and the North East. L&G, one of the largest MF investors in the sector to date, recently placed three of their operational schemes on the market in Manchester, Glasgow and Bath. Grainger has acquired The Astley from M&G, a 135-unit operational BTR scheme in Manchester. Citra Living has acquired 159 SFH units from Morris Homes in Northampton and Lancashire and has also purchased Broadside, Manchester a 274-unit operational MF BTR scheme from Corebridge.
L&G’s Suburban BTR platform has agreed a £40M deal with Vistry Group to bring forward 147 SFH homes in Coventry. Gatehouse IM has acquired 127 SFH properties from Avant Homes for £26M as part of its JV with Carlyle.
Direction of Travel
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 2025 to be a noticeably stronger for new start on sites than 2024.
Capital continues to grow in the SF market and we see this continuing into the new year. Housebuilders are receptive to trading in the institutional market with pricing conducive to transacting.
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.