The Build to Rent Sector going into 2022 – An Article by Peter Hardy, Managing Director
The Build to Rent sector (‘BTR’) has gone from strength to strength over recent months. Figures show that £2.35bn was invested in the UK BTR sector in the first half of this year – an 80% increase compared to the same period in 2020, with predictions that 2022 will see record levels of investment. BTR has also proven its resilience in the face of difficult times too: planning permissions increased by 52% in the past 18 months.
Hitherto the bulk of BTR investment has gone into traditional city centre apartment blocks in urban areas, aimed at young professionals. But the signs are that 2022 will see a rapid increase in the suburban BTR market with businesses such as Platform_ leading the way investing in sites in commutable towns around 30 miles from the centre of London. Equally the marketplace continues to be attractive to investors and operators in all major UK cities.
Covid-19 has certainly accelerated the attraction of BTR for many families. More renters are seeking homes outside of city centres that possess the sense of community that sustained them during the pandemic. And, as the hybrid working model is now here to stay with large numbers of people continuing to work from home at least some of the time, families are looking for homes that accommodate adequate workspace and smart technology. A recent survey found that 85% of tenants want instant connectivity to superfast broadband, and that 75% of respondees wanted smart lighting, heating and security systems. For example, Apache Capital’s new family focused brand, PresentMade, is based on the ability for families to rent long term and pick and choose a range of facilities and services on developments with excellent transport options but also with a semi-rural location, thereby creating an alluring package.
The real estate sector is responding and more businesses are wising up tat BTR will be a massive sector. Lots of new brands are being created but developers who now want to keep sites long term. 75% of developers are more likely to consider creating home offices in future building projects, and 77% are now more likely to provide touch-free tech in their products, as well as there being plenty of focus on local retail options and creating a sense of community.
And while such add-ons put property at a higher premium than a more basic rental, this changing rental demographic – an older adult market – means many are willing to pay for it, meaning greater returns for investors. Several reports have found that where BTR has been delivered, there is evidence of very strong tenant demand. One report in early 2021 had consistently high occupancy in excess of 97%. When new schemes have completed, they have been very quick to let, in many cases letting as quickly as the units complete. A flexible approach to tenancy length but with the operator aiming to ensure that tenants remain in play for well over two years’ before considering their options. Get Living offer three years tenancies with six month break clauses. What’s more, the majority of single family housing tenants are less transitory in nature, reducing the risk of tenant turnover and producing more reliable income streams. At the same time, increased regulations and tax changes are pushing private landlords out of the traditional Buy to Let market, meaning many such landlords will sell up, leaving a vacuum that still needs to be filled by significant private equity, institutions and developers. This vacuum is getting filled by more sophisticated operators who genuinely want the tenant to thrive long term.
The untapped potential of the suburban BTR market can also help the property industry navigate the end of Help to Buy and the stamp duty holiday, two policies that have helped sustain the housebuilding market for the last few years., but will not be around for much longer. Over 55% of new build sales in the past three years have been supported by a Help to Buy loans, with some areas reaching as high as 60%. But with the scheme restricted to first-time buyers and new regional price caps introduced from April 2020, this will reduce its usage. Investment in BTR means housebuilders can continue to deliver homes at scale to compensate for this loss.
Up until very recently, the suburban Build to Rent sector has lacked the same concentration of institutional investment, with less than 4% of the market having benefited from capital investment compared to around 6% for the urban sector. Legal & General unveiled a new dedicated suburban Build to Rent arm to bring forward more than 1,000 homes annually in 2020; last month. PresentMade will delivere two major schemes in the Oxford/Cambridge corridor, a suburb of Cambridge; in addition in the late summer, challenger bank, Gatehouse Bank announced plans to support the building of over 2,000 homes with the initial sites in the Midlands, Greater Manchester and Merseyside. There is plenty more to come for sure.
These strong fundamentals – and resilience during adverse market conditions – should spark further interest in the sector from investors. 2021 may already be a record year for BTR, but it looks like 2022 will surpass it, and we’ll see more major deals done in both large cities and suburban BTR in particular.
psd has been at the forefront of the recruitment in BTR for several years and has helped many of the well established businesses both in set up phase and development phase. Our ability to provide individuals from all disciplines within the property industry, as well as those candidates with a hospitality background has proved highly successful. We continue to support new entrants and investors and have created a strong track record of success in development, investment, finance and operations.
Please do contact Peter Hardy, Managing Director at email@example.com and/or on 020 7970 9701.