The build to rent market in the UK saw its second highest year of investment ever in 2023, and it’s a clear sign of changing demands within the private rented sector.
Build to rent is becoming less “niche” and more an established sector in the UK property market. It focuses on tenants’ needs, offering more facilities, amenities and communal areas to create more of a way of life and a community than traditional buy-to-let tends to provide.
Its growing prominence within the UK rental sector, as well as its popularity among tenants and investors alike, can show a new trend emerging. Rather than simply renting as a means to an end before buying, increasingly, people are choosing this property type as a more flexible – yet stable – lifestyle option.
Property investors and buy-to-let landlords who invest in developments that provide additional amenities, from concierges to resident lounges, roof terraces, gyms and bike storage, for example, are able to attract the type of tenant who wishes to rent as a more long-term option, providing a more stable income for the landlord.
The latest research from Savills shows there are now around 267,000 build to rent properties across the UK, with just over 100,000 complete and ready for habitation. A further 53,800 are under construction and 112,800 are still at the planning stages- showing that the supply is set to double in the coming years.
Record-breaking build to rent
Although 2022 was the most active year on record for investment into the sector, with £4.6bn invested, last year was not far behind with total investment of £4.5bn for the year, according to Savills research. The agency puts much of this huge growth down to strong demand for rental homes.
Although this demand is linked to higher mortgage costs – which are keeping some would-be buyers off the property ladder – Savills notes that even if the government hits its 300,000 new homes a year target, it will still need to add 60,000 homes to the private rental market each year.
Build to rent, along with the wider buy-to-let market, has proven lucrative in terms of rental yields over the last year, and these returns are attracting more investors.
Guy Whittaker, Head of UK Build to Rent Research, Savills, said: “Despite the macro-economic challenges – elevated cost of debt and continued material and labour-cost inflation – the sector has proven resilient.
“The BtR market has seen continued growth due to the housing supply and demand imbalance and high levels of rental growth. This has led to inflation-matching returns while yields have proven comparatively strong.”
Huge growth still expected
With the sector showing so much resilience and outstanding growth over recent years, Savills has an optimistic outlook for build to rent over the next decade. There is certainly a shift within the UK housing market where renting has become a desirable option for more people, particularly within higher-quality developments.
Savills predicts that there will be as many as 360,000 homes within the sector by 2033, due to the “growing possibilities to leverage operational efficiencies from better data on portfolio performance and experience”. Whittaker points out that it is “in good stead” for its next phase of growth.
While London has been the most notable driver behind the build to rent boom, with developers tapping into the huge levels of tenant demand in the capital alongside a shortage of supply, the north west has also been leading the way as the top region for investment.
A high number of build to rent developments have been created or are in the pipeline for the likes of Liverpool and Manchester, which are particularly in demand among tenants looking to leave London for a more affordable place to work, yet with a flourishing employment market.
It is expected that the “core cities” of the UK will deliver 33,000 new build to rent homes over the next five years, while London will provide only slightly more at 35,000.
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