BTR market: year-end overview and key predictions for 2024

Rund’s Paul Belfield reflects on the growth of Build to Rent in 2023 and provides key predictions for the sector in 2024.

Paul Belfield, Director, Rund | BTR News
Paul Belfield, Director, Rund.

The popularity of Build to Rent has been rising and, while still a relatively nascent market in the UK, it is coming into its own as a major real estate sub-sector.

By Paul Belfield, Executive Director of Rund

Eight months from our 2023 Build to Rent Research Report, we review the market’s performance over the past year and share some key predictions for 2024.

Growth trajectory

Build to Rent has shown resilience in the face of economic instability and wider industry challenges. Despite some slowdown in project starts, the market achieved growth and, looking ahead, Knight Frank forecasts the UK sector’s expansion to £126bn by 2028.

Materials and labour

Better than expected inflation and stabilising interest rates are easing construction costs; however, material prices remain over 40% higher than pre-Covid, which is likely to keep affecting developers and contractors, potentially leading to more insolvencies. Rund research also highlights the labour shortage. These obstacles are impacting Build to Rent but we expect the market to settle in 2024.

According to Knight Frank’s Q3 2023 report, although like-for-like volumes were around 22% lower, investment remained relatively robust in a challenging environment. Other trends include earlier due diligence, and the cost of debt affecting deal structuring. We anticipate more activity in the secondary market and for joint ventures to grow in prominence.

Demand and supply dynamics

The housing crisis remains unabated, and demand will continue to outweigh supply, causing rents to rise further. With fewer mortgages issued, interest in rental properties is increasing and more middle-income earners will enter the space. Society is evolving towards a more flexible rental model, which will become more evident in property choices.

Single-family homes

Single-family homes (SFH) are an area of substantial growth – 71% of investors want to enter the sector in the next five years, and the British Property Federation notes that the rise of SFH has led to Build to Rent expanding into new markets. Growth will continue, as SFH is yet to reach its full potential.

Location, location, location

London and the Southeast will remain Build to Rent hot spots, with investment also spreading to the Midlands, the North and Scotland. Rund is seeing promising demand in Birmingham, Liverpool, Newcastle, Leeds, Southampton and Bristol too.

Catalyst for regeneration

It’s important to focus on the significant role Build to Rent plays as an enabler of regeneration. The social value element is equally critical, and community and wellbeing will be at the heart of developments more and more.

Sustainability and responsibility

Build to Rent has an opportunity to make a huge difference in supporting the green agenda and decarbonising our built environment. Other encouraging developments of the past year lie in the regulatory domain, including the Renters’ (Reform) Bill and the Build to Rent Code of Practice.

Our team is currently consulting on schemes comprising close to 5,000 Build to Rent units. Well-placed to navigate market challenges and demonstrate resilience, it is one of the most exciting sectors revolutionising real estate that will reach new heights in 2024 and beyond.