The Build-To-Rent (BTR) sector has been gradually emerging as an integral part of the UK property market in recent years. Driven by a favourable public policy environment, significant demand and increasing investor appetite, total investment in BTR in the UK rose to £2.4 billion in 2019, according to the latest research from global real estate firm CBRE. It mirrors the situation across Europe as a whole, where investment reached a near all-time high in the same year.
Research from The Centre for Housing Policy predicts that by the end of this year, £50bn will be invested into the Build-to-Rent sector, with an estimated 6.75 million households living in rented accommodation by the end of the decade. A long-term decline in home ownership has spurred this meteoric rise in BTR, with UK owner-occupied housing dropping from 73% in 2007, to just 60% in 2020, plummeting among almost every age group.
This is a significant disruptive phenomenon, which has spurred the construction of 157,512 UK build-to-rent homes in the first quarter of this year, of which 43,236 are complete; a 42% increase on the same period last year. The rise is strongly concentrated in the capital, nearly half (74,892) being built in London, according to the British Property Federation.
It’s worth noting that for the first time since the 1960s, the overwhelming majority of homes in London’s private rental sector are owned by small scale, amateur landlords, posing challenges in terms of quality of accommodation and tenant security. Purpose built, professionally managed BTR developments address these challenges. The problem of short-term leases is avoided thanks to BTR’s longer term tenancy options, while shortfalls in property management are mitigated by the fact that BTR developments will have maintenance carried out by a single on-site company.
BTR is attractive to investors who value secure, long-term, income-producing assets. The unique portfolio diversification of BTR properties have enhanced its reputation in comparison with underperforming traditional investments such as sovereign bonds. Institutional investors, especially insurers and pension funds with longer time frames, favour the steady flow of income BTR provides to balance against their liabilities.
CBRE forecasts that total residential investment will grow by around 30% in 2020, with demand being driven by an increasingly diverse investor base from both domestic and overseas institutions. Demographic trends strengthen the investment case further, with the UK’s population expected to grow by 0.4% per year through to 2028 - double the EU average of 0.2% - with London’s population is increasing even faster while at the same time, household sizes continue to fall, with more people living alone. While the Government states that 300,000 homes should be built annually, in reality supply is falling well short, with just 173,660 built in 2019. This supply and demand imbalance creates long term upward pressure on house prices, making home ownership difficult to achieve for many.
With more people renting, and more rental accommodation available for them to choose from, there is a drive towards service-led residential housing, with properties that offer residents an increased range of amenities and internal services. BTR is the embodiment of this step-change, offering professional managed, secure and high-quality rental products. For example, at Strawberry Star, our developments include not only high-quality, modern living accommodation, but also help to create a community by including amenities such as communal areas, gyms, and concierge services. The distinct appeal of this differentiated offering is being met with a demand that far outstrips supply.
The significant potential for this market opportunity, brought about by changing attitudes towards renting, a lack of affordable homes for sale, growing consumer demand and current demographic and social trends - all supported by a favourable policy environment - means it is no surprise that investment in Build-To-Rent is booming.
BTR is attractive to investors who value secure, long-term, income-producing assets. The unique portfolio diversification of BTR properties have enhanced its reputation in comparison with underperforming traditional investments such as sovereign bonds.