Hotels (Commonwealth Union) _ Over the past decade, the UK Build to Rent (BtR) sector has witnessed remarkable growth, with £35 billion of institutional investment funneled into the creation of 100,000 BtR homes. These homes are spread across 542 apartment schemes, all professionally managed and let, according to Savills’ latest report. Despite this progress, Savills cautions that an additional £300 billion is needed to meet the projected household growth and to provide an extra million homes in the Private Rented Sector (PRS) by 2031.
Traditionally, development has been the primary investment route, with Savills noting that of the £20 billion invested between 2018 and 2023, just over a fifth went towards purchasing fully operational stock. However, Savills predicts a shift towards more investments in stabilized schemes. They foresee that between 2024 and 2028, operational asset investments will account for 25% of total investments, rising to 30% between 2029 and 2033. This shift means an estimated £20 billion will be funneled into the operational BtR market over the next decade.
The first quarter of 2024 already saw a significant shift, with 60% of BtR investments directed towards operational assets – the highest proportion since 2015. Operational BtR is now widespread, covering 100 local authorities, including every London borough. Savills’ report highlights that London and key Core Cities like Belfast, Birmingham, and Manchester dominate the BtR apartment landscape. The combined value of stabilized operational assets is estimated at £35 billion, with £23 billion in London and £12 billion outside the capital.
Piers de Winton, Head of National Residential Investment & Single Family, Operational Capital Markets at Savills, commented on the sector’s growth potential. Despite the significant progress, BtR currently constitutes just 2% of PRS households in the UK. In contrast, institutional ownership in Germany and the USA stands at 41% and 37% respectively. If the UK were to adopt similar levels, institutions could own between 2.1 and 2.4 million PRS homes, compared to the current 100,000. De Winton emphasized the immense opportunities for investors to achieve large-scale portfolios akin to those in more mature markets.
Savills’ research also indicates a burgeoning pipeline, with 110,000 BtR homes in planning – the largest to date. This growth trajectory suggests the sector could expand rapidly, potentially doubling in size every few years, much like the student housing sector.
Guy Whittaker, Head of UK Build to Rent research at Savills, noted the increasing early-stage involvement of investors in funding purpose-built rental schemes. This trend is evident as 64% of schemes since 2018 were purpose-built for rental. Furthermore, 2023 saw 50% of BtR investments coming from new market entrants, up from 20% in 2018, reflecting a diversifying investor profile and an influx of global capital.
As the BtR sector continues to evolve, it presents substantial growth potential and opportunities for investors, marking its emergence as a mainstream investment avenue in the UK housing market.Top of Form
