new-build residential development build-to-rent

Build-to-rent came out top of the property sectors in 2023

The UK build-to-rent sector offers increasing “opportunity for future growth” according to the latest research, which shows 2023 was a stellar year for this section of the housing market.

Rental demand across the UK remains extremely high, and investors have been backing a relatively niche – but rapidly expanding – market of purpose-built rental accommodation. It offers private rental space but with a community feel and often shared amenities, and it’s growing in popularity.

A key sign of how the demands and expectations of today’s tenants are changing, build-to-rent tends to comprise brand-new apartments or houses in key city centre locations, or developments close to key transport links. In apartment blocks, there tends to be added extras such as gym facilities, a concierge, sociable spaces and communal areas.

In the latest research from Savills, this sector was the strongest alongside affordable housing in terms of new developments and growth in 2023. In its latest Q4 English Housing Survey, published this week, it notes that the sector has now passed the 100,000 completions mark as of the end of last year.

It adds: “Completions rose by 57% compared to 2022, driven by strong delivery of flatted schemes in regional cities. Starts were 26% below their 2017-19 average, but a large existing pipeline should sustain delivery.”

Build-to-rent investment hit £4.6bn

Knight Frank has also released a report looking at the various trends and outcomes across the UK property market, and notes that the build-to-rent space had a record year in 2023, surpassing the growth levels of the housing market at large.

In total, investors spent £4.6bn on UK build-to-rent assets last year, with £1.9bn of this coming in during the final quarter of the year. This growing level of interest is a sign that investors continue to see the value of the UK rental sector, catering for the extremely high numbers of tenants seeking homes.

While more than half (53%) of last year’s total investment came from UK investors, North America was the most prolific overseas source of investment at 38%. Investors from Asia Pacific made up 7% of the total, says Knight Frank, although investment from Europe has shrunk.

In terms of who can buy, it is generally property developers, large landlords, financial institutions and institutional investors that can invest directly into build-to-rent developments. According to the figures, 36% of funding in 2023 came from private equity, followed by pension funds making up 22% of the total.

However, smaller landlords and individual investors can purchase the growing number of opportunities that mirror build-to-rent, by investing in a property within a new development that caters for the growing appetite for communal and sociable spaces, such as shared garden and roof space, for example.

Demand is high and growing

There are multiple reasons for the recent growth in tenant demand. People are getting onto the property ladder later than ever, either due to financial reasons such as not being able to save for a deposit, or lifestyle choices such as wishing to live with friends or in a better location where sales prices are too high.

At the same time, it is widely acknowledged that housing supply is not currently keeping up with what is needed, and this is particularly prominent in the private rented sector, particularly in sought after rental locations including many regional city centres.

As such, demand for all types of rental housing is likely to remain high. According to separate research from Savills, between now and 2031, the number of households living in the private rented sector is projected to rise by 800,000-1,000,000. At the moment, the sector is home to around 4.6 million households.

Therefore, in build-to-rent as well as in traditional buy-to-let, the need for accommodation is set to remain high for a number of years, and purpose-built rental homes are therefore likely to continue to grow in popularity for investors and tenants alike.

Read more UK property news here.

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