Build to Rent sector must embrace affordability to sustain growth

Highlighted in a new report by Lambert Smith Hampton, the Build to Rent sector must embrace affordability to sustain continued growth.

A new report by Lambert Smith Hampton's highlights that the Build to Rent sector must embrace affordability to sustain continued growth | BTR News

The Build to Rent sector has grown rapidly over the last decade. There were 96,091 units completed by the end of 2023, which accounts for around 2% of the UK’s total private rented stock. A further 66,927 units are under construction, and 113,909 are in the longer-term planning pipeline.

At current growth rates, the sector is projected to double in size within the next five years, according to a new report by commercial and residential property consultancy, Lambert Smith Hampton.

However, the report highlights that the Build to Rent sector must embrace mid-market and regional needs if it aspires to be part of the solution to the ongoing housing crisis. Lambert Smith Hampton suggests that the next phase of Build to Rent growth will depend on its ability to provide more affordable products and schemes tailored to regional market demand.

Once synonymous with apartments aimed at young urban professionals, Build to Rent now encompasses a broad range of housing solutions – including mid-market schemes, suburban properties, and homes aimed at families and older renters. The next wave of Build to Rent development – dubbed ‘BTR 2.0’ by Lambert Smith Hampton – will increasingly focus on delivering these homes for which demand is most acute.

Build to Rent is also spreading into new locations. Whilst major cities – such as Birmingham, Leeds, Edinburgh and Glasgow – are hotspots for new schemes, development is yet to ripple out to smaller towns and cities. Lambert Smith Hampton’s research reveals a myriad of potential Build to Rent locations that remain largely untouched by developers – including Portsmouth, Plymouth and Norwich – being among those with the greatest untapped promise.

The report also argues that a re-thinking of amenities is key to making Build to Rent work in these non-core regional locations. Amenities such as gyms, cinema rooms and lounges may not be viable in smaller markets. Build to Rent operators would need to be prepared to scale back amenities, while still offering a quality of product and service that distinguishes itself from the local PRS competition.

“The Build to Rent sector continues to offer huge growth potential. It is at the heart of a growing living family, which also includes co-living, senior Build to Rent, PBSA and SFR homes.

“Collectively, these will accommodate increasingly large sections of the UK population over the coming years. To sustain this growth, developers and operators will need to create affordable solutions suited to locations that are currently underserved by Build to Rent, which may mean adjusting unit mixes or scaling back on-site amenities to improve viability in the face of continuing build cost challenges.”

Simon Wilson, Head of Lambert Smith Hampton Living & Capital Markets

In terms of investment, the report highlights the increase in single-family housing (SFH), which accounted for 42% of all Build to Rent investment in 2023. According to Lambert Smith Hampton, this was largely due to housebuilders’ increased willingness to make bulk sales of homes to investors in the face of falling sales of individual units to the wider public.

This trend is expected to provide a continued boost to investment volumes in 2024 and beyond. Lambert Smith Hampton predicts that improving conditions in the financial markets, alongside the sector’s compelling fundamentals, will drive another new record year for volume in 2024, rising to over £6bn and accounting for as much as 15% of the total UK CRE market. This market share is expected to remain preserved into the new cycle, particularly as more up and built stock begins to change hands.

“While 2023 was a record year for Build to Rent investment, the surge in SFR activity disguised a slowdown in transactions for more conventional multifamily Build to Rent assets, as higher interest rates impacted the market. However, a more benign interest rate environment should support a rebound in forward funding deals for core Build to Rent assets in 2024. Coupled with continued SFR activity, we forecast that a new record volume of over £6bn will be achieved this year.”

Ewen White, Director – Lambert Smith Hampton Living & Capital Markets