The build-to-rent sector could increasingly plug the supply gap for UK tenants, and construction in the industry is booming to meet demand.
Property investors and developers continue to see the huge value and potential of the burgeoning build-to-rent space in the UK as the country’s rental market struggles to keep up with the needs of tenants.
New research released by Knight Frank has revealed that volumes in the niche sector have risen by 10% in the third quarter of 2022, with investment levels hitting £1.435bn. This brings the total investment for 2022 so far up to £3.165bn, up from £2.895bn at the same point last year.
The estate agency believes we are on track to see a record-breaking year in terms of growth in the build-to-rent sector, due to the volume and value of deals in the pipelines that are due to exchange in the final quarter of 2022.
A robust asset class
Build-to-rent differentiates itself from traditional buy-to-let in a number of ways, the main one being the quality of the offering. Properties are developed and sold specifically for renting tenants, normally with a focus on long-term renting which creates a more embedded community.
A lot of institutional investors currently supports the sector, as well as individual investors. The likes of John Lewis and Legal & General have both recently entered the fold as the area has evolved, and while much of the investment remains focused on London, developments elsewhere are accelerating rapidly.
According to Nick Pleydell-Bouverie, head of residential investments at Knight Frank, investor confidence is currently extremely high, and it is expected to remain so even through turbulent times.
“It is a robust asset class that outperforms in periods of economic uncertainty,” he said. “While there are clearly market headwinds that will need careful navigation, investors can be confident that the sector remains attractive, with strong current and forecast rental growth prospects.
“As mortgage costs rise and buy-to-let rental stock declines, we will see demand for high-quality, professionally-managed build-to-rent products continue to increase, providing investors with a resilient and appreciating income stream for years to come.”
Premium property for premium rents
An estimated 7% of all new-build homes in Britain are build-to-rent developments, according to recent data. While London continues to be home to more than half of the market share in terms of levels of investment, the likes of Birmingham, Liverpool, Manchester and Sheffield are all catching up.
There is huge demand for rental properties at the moment from tenants, and professional tenants in particular are considering build-to-rent options as a more premium choice. The added amenities that they often include, such as a concierge, shared workspace and communal areas, gyms and even creches, are an added draw.
Rents have been increasing across the board in recent years, and the average rental value in the UK for build-to-rent is now around £1,786 per month, according to EG Premier Data. In Birmingham, it sits at £1,352 per month, while in more affordable Liverpool it is £1,251 per month.
Of course, the initial cost for an investor wishing to purchase a build-to-rent apartment or house tends to be higher than for an existing property that is not purpose-built, but the growing popularity of this type of rental home is drawing more buyers into the fold.
In the north and Midlands in particular, EG’s data shows that properties in this specific sector are being snapped up by tenants faster than elsewhere, with an average of just three to seven days between listing and let. The UK average is 28 days, while in London and Edinburgh, it takes more than 30 days on average.
BuyAssociation connects investors with developers at an early stage of a project’s progress, including in the build-to-rent space. Get in touch to find out more.