£8bn heading for UK’s growing suburban Build to Rent sector

New research reveals a wave of capital – almost £8bn - is heading for the UK’s growing suburban Build to Rent sector.

Suburban Build to Rent Housing - Knight Frank | BTR News

New research released today (4 November 2021) by Knight Frank suggests a wave of capital is heading for the UK’s burgeoning suburban Build to Rent sector – as investors look to diversify and grow their exposure to the private rental market.

According to the Knight Frank Suburban BTR Housing Report 2021, the last 12 months has seen a rapid acceleration in the volume of capital looking to enter the suburban Build to Rent market – with £275m invested since the start of 2020. A further £7.8bn is earmarked for deployment within the next five years.

Knight Frank says that the opportunity for investors to deliver purpose-built rental housing is clear. According to the property consultancy, there are currently 2.3m privately renting households who live in suburban areas around the UK; while the majority of private renters (60%) already live in houses as opposed to flats.

“To date, the capital committed to the suburban Build to Rent housing market remains a fraction of overall institutional investment into Build to Rent. However, our analysis suggests the sector is set to see significant growth over the coming years, underpinned by strong investment and demand-side fundamentals.”

Oliver Knight, Head of Residential Development Research, Knight Frank

There has been early evidence of investor appetite for standing assets. In January 2021, Goldman Sachs-backed Pitmore acquired a £150m portfolio of over 900 suburban homes in the North West. PGIM Real Estates also acquired Wise Living’s suburban Build to Rent portfolio – which included five stabilised assets and three development sites across the Midlands and the North.

The investment fundamentals are strong. In recent years households aged 35+ have consistently been the fastest growing group of private renters. Such households usually require larger properties in less urban locations – often with a garden, and located close to local amenities and within reach of employment hubs. They also tend to be infrequent movers – given their ties to local schools, employment and support networks. For investors, this means a lower tenant turnover, longer tenancy terms, and fewer and shorter void periods – resulting in reduced operational costs and a more secure income stream.

“Given Knight Frank’s research, it comes as little surprise that a growing number of dedicated suburban Build to Rent housing investment and development vehicles have been created in the last year to specifically target this burgeoning market. There is a clear opportunity to increase the delivery of purpose-built rental housing and bring the benefits of institutionally-managed product to more renters – particularly young families – and investorsare taking advantage of this.”

Jack Hutchinson, an Associate in the Residential Capital Markets team, Knight Frank

Multiple lockdowns due to Covid-19 has increased renters’ desire for space – both indoors and out. 72% of respondents to Knight Frank’s latest client survey said that having a garden or access to green space is more important now than it was pre-pandemic, while 53% said that experience following Covid-19 meant they were now looking for a larger property. A further 67% of people want a dedicated space to work.

This search for space has already driven demand for housing in suburban markets – something that is sure to continue. This will likely be one of the most dominant and longest-lasting trends on the UK’s housing market following Covid-19.

“In addition to the compelling investment fundamentals, there are a number of key benefits for developers who choose to deliver suburban Build to Rent. Firstly, the forward fund or forward commit nature of these early transactions helps to de-risk projects which could otherwise by subject to a fluctuating sales market.

“Suburban Build to Rent can also shorten development timeframes and release areas for development ahead of a sales delivery strategy. There is often the ability to improve massing on suburban Build to Rent sites with the adoption of efficiently-designed Build to Rent units. Finally, the delivery of rental product on a development can assist in the early marketing of any sales product by creating a bustling and lively community in which people wish to live.”

Jack Hutchinson, an Associate in the Residential Capital Markets team, Knight Frank