Build to Rent stands out amid subdued Q1 for UK rental market

Build to Rent accounted for a record share of investment volume, according to Lambert Smith Hampton’s latest UKIT report.

Moda’s Great Charles Street Build to Rent scheme in Birmingham | BTR News
Moda’s Great Charles Street Build to Rent scheme in Birmingham.

While activity was relatively subdued in Q1, Build to Rent accounted for a record share of volume, according to property consultants Lambert Smith Hampton’s latest UK Investment Transactions (UKIT) report.

The report indicates that despite signs of stability returning to pricing, as predicted, investment appetite remained generally subdued during Q1.

£8.1bn of property assets changed hands in the first quarter, a marginal 2% improvement on Q4 2022’s outturn but 38% below the five-year quarterly average.

While Q1’s activity was low; the number of recorded transactions down 19% on Q4 2022 and 43% below the five-year trend, there was an uptick in bigger ticket deals.

The quarter saw 20 transactions in excess of £100m (up from ten in the previous quarter) which together accounted for a substantial 58% of Q1’s volume.

Buoyed by the relative resilience of the private rented residential market, investment in Build to Rent assets hit £1.3bn and accounted for a record 16% share of total Q1 2023 volume, which compares with a 6% share of the market over the past five years overall.

 “The strong showing for Build to Rent in Q1 is testament to the resilience of the wider PRS sector, which continues to drive deal flow and development across Build to Rent and into the emerging single-family housing market. This has limited the yield correction in the sector when measured against the falls seen in other asset classes. We see significant appetite from clients in these sectors and expect to see strong deal flow in H2, with single-family housing predicted to see the largest increase.”

Simon Wilson, Head of Build to Rent, Lambert Smith Hampton

Build to Rent’s strong showing was the highlight amidst a subdued quarter for the living sectors overall, with Q1 volume for hotels and leisure and student accommodation down by 51% and 70% from their respective averages.

Q1’s headline Build to Rent deals included Harrison Street, NFU Mutual and Apache’s £302m forward funding of Moda’s 772-unit scheme at Great Charles Street, Birmingham; Canadian Investor Realstar’s £108m 488-unit UNCLE (phase 2) scheme at Whitehall, Leeds; and Sigma Capital’s £205m play to develop 885 units across 11 sites around the UK.

In the wake of structural and environmental pressures, investor caution appears to be centring on offices.

Q1 office volume of £2.6bn was 43% below the quarterly trend, despite being bolstered by Q1’s largest overall deal, MEAG Munich Ergo’s £616m (4.39% NIY) purchase of One fencourt, London EC3 from Assicurazioni Generali.

The regional markets were especially subdued, with Q1 volume outside of the wider South East of the UK slumping to a record low of just £70m.

Industrial was the weakest against trend in Q1, with volume of £1.2bn just half its average and circa 67% below the boom levels of 2021.

However, in contrast with offices, the market remained busy with much of Q1’s apparent weakness explained by a combination of the impact of the severe price correction on volume and an absence of major portfolio transactions that characterised the boom period. Q1 saw 84 industrial assets change hands, but only three were in excess of £50m.

Statistics are from the Lambert Smith Hampton UKIT report that highlights Build to Rent as the most active asset class for investment transactions during Q1 2023 – eclipsing all the core asset classes such as offices, industrial and retail.