The build-to-rent market could triple in size in the the next few years, suggests new data from Knight Frank.
The data, shared exclusively with Property Week, shows that 43,554 BTR units are currently under construction, a similar number to the 46,178 that have already been completed and the 40,796 currently going through the planning process.
With the pandemic likely to boost demand for BTR housing, Knight Frank believes we could be just at the “starting line” in the race to develop and invest in BTR schemes.
James Mannix, Knight Frank’s head of residential development and investment, predicts that the sector will remain on a significant growth trajectory for the next 10 to 15 years.
“I think we’ll continue to see a greater proportion of rental homes under construction each year,” he says. “So next year, I would expect it to be about 50,000.
“The challenge for the past five years has been deploying capital into the sector. Covid-19 has made that slightly easier in that it’s loosened up opportunities where other use classes are no longer viable, while this market is increasingly viable.”
Mannix adds that investors on the sidelines now have another imperative to pile into the sector: it has performed well through the pandemic and investment is on track to top £4bn this year. Had it not been for the pandemic, it would have been a stronger year still.
“If you’d asked me at the beginning of the year, I’d have said we would transact way over £4bn, but this is still going to be a record year by some margin,” says Mannix.
“What dented it was that there was a period when we couldn’t transact, as everyone was locked down at home so no one could go and see real estate.”
One of the big upsides to the sector, says Mannix, is that the money currently coming in is “vastly more institutional with every day that passes.
“There’s an implicit covenant for them to do a good job, because they are investing our pension money into properties. For their own reputation, they need to have continuity of income and a good service at a reasonable price.”
The Knight Frank research shows 40% of BTR units are in London and 60% in the regions, with a strong focus on key cities such as Manchester and Birmingham.
Mannix says this split is likely to stay the same in the short term because London is the most attractive location in terms of scheme viability. In the long term, he thinks the scales will tip towards the regions as operators expand their family housing portfolios.
“There’s a huge amount of investment looking at single family housing – more conventional houses with a back garden and the like,” he explains. “It will tip the balance further towards the regions and commutable submarkets outside of London.”
Currently, 3,971 single family rental homes are being built in the UK.
Although the Covid-19 lockdown slowed activity in the BTR sector, it hasn’t diminished investor appetite for the asset class and the market looks set to enjoy strong growth in the months ahead.