The build-to-rent sector has seen a surge in construction activity in the UK’s regional cities, while growth levels are stunted in London.
Overall, the number of build-to-rent properties completed or in the pipeline in the UK has increased by 11% compared with this time last year, totalling 263,694 new homes in the sector. But it is the regional cities that have experienced a standout performance, according to the latest report from the British Property Federation.
Its research, in partnership with Savills, shows that regional cities saw a 16% year-on-year spike in the number of build-to-rent homes being built to Q3 2023, with 3,339 new starts. This compares with just 434 new starts in London in the third quarter, which is a year-on-year rise of 5%.
Why are regional cities seeing a surge?
When the sector first began to gain traction in the UK, it was predominantly concentrated in London, where tenant demand is particularly high. Build-to-rent also lends itself to relatively dense areas and high-rise buildings. Over time, more and more units have been built further afield, led by the likes of Manchester and Birmingham.
This has coincided with the wider rental markets of such places becoming stronger, with rents rising at the highest rate in Manchester than anywhere else in the country thanks to growing tenant demand. As a result, build-to-rent developers have honed in on these areas to fulfil this need.
As Ian Fletcher, policy director at British Property Federation, points out, there are also a number of external factors that have meant regional cities have made more headway than London over recent months in the sector.
“There is huge demand for purpose-designed homes for rent in London and major cities, but the sector is facing significant headwinds in terms of delivery. Uncertainty on inflation and where interest rates will peak is causing projects to stall, particularly in London where developments are typically higher-density and more complex.
“However, there are nearly 60,000 homes with a detailed planning application in the sector suggesting market activity could pick up quickly when conditions are right, but policymakers must recognise more support may be required to sustain the growth of the sector in the short-term.”
A good option for tenants and investors
The sector has gone from strength to strength in recent years, due to its unique offering; it consists of newly built homes, normally flats within blocks, that are constructed to a high standard with tenants rather than homeowners in mind. They often include additional amenities and shared spaces to bring a community feel.
The property type is particularly popular among young professional tenants, who want to live in a sociable yet more high-end home than a traditional buy-to-let, and they tend to be built in or close to city centres and good transport links. For property investors, they can offer a more secure rental income and capital growth pipeline.
It can also be a more hands-off option than standard buy-to-let housing, as it is often inclusive of professional management, which can deal with many issues such as general repairs and maintenance, as well as sometimes offering a concierge service.
At the moment, many property investors are choosing to concentrate their efforts on some of the country’s major regional cities, as opposed to London, due to the strength of the rental markets as well as the greater prospects for capital appreciation.
There has also been a trend for build-to-rent developers to branch out further into the areas surrounding the regional cities and London, as Jacqui Daly, director, Residential Research and Consultancy, Savills, pointed out.
“With the Bank of England signalling that interest rates are now expected to stay higher for longer, demand for homes for sale is likely to remain weaker in the short to mid-term further fuelling demand for build-to-rent,” she said.
“The sector is expanding beyond the major cities and evolving to offer a wider mix of single-family and multi-family products which will see it become an even more important component of overall housing supply.”