Who is Active / Headline Deals
High inflation and cost of capital has presented viability challenges for development. Strong rental growth and high occupancy rates are compelling which has helped limit pricing movement, counteracting a slight softening of yields. The nationwide supply / demand imbalance means that the investment case remains strong and transactions are being structured considering the market challenges. The latest BOE decision to hold interest rates has helped with a positive shift in sentiment and a feeling that rates are (or close to) topping out.
There has been increasing interest in PRS sales by housebuilders as sales rates remain slow. Recent Single Family transactions include Casa by Moda acquiring 223 homes at Casa Abbey Court, Leeds and Picture Living’s – PfP Capital’s SFR platform – forward funding two schemes in Essex for £23M.
After a challenging 12 months in the Multi Family market, recent transactions including Greystar’s forward funding of Dandara’s 391-unit BTR scheme in Staines and Long Harbour’s forward purchase of 370 units in Colindale being delivered by St George of Berkeley Group has provided a timely reminder of the investor demand which remains in this sector.
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 253,402. Numbers in the regions continue to grow at a faster rate than London, accounting for approximately 156,108 with 97,294 in the capital.
We continue to expect investors to chase 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 and order books reduce, contractor pricing should be more conducive for development.
Affordability constraints in the mortgage market will only exacerbate the demand on rental stock, particularly in the Single Family housing space. A recent Rightmove report suggests that the average number of applications per rental property has risen from 6 pre-covid to 25 today.
Strong rental growth and high occupancy in suburban areas is likely to continue as the supply/demand imbalance becomes more acute.
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, funding NIYs range from 4.00% to 4.50%, with major regional centres at 4.25% to 4.75%. 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%-5.00% in the regions.