Investors remain attracted to UK Build to Rent sector

Chronic rental homes shortage and growing demographics provides long-term opportunity for Build to Rent, with a rise in affordable schemes.

Night view of Watkin Jones' Central Quay Build to Rent development in Cardiff | BTR News
Night view of Watkin Jones' Central Quay Build to Rent development in Cardiff.

Investment in the UK Build to Rent sector has almost doubled year-on-year, according to new research from real estate services firm Cushman & Wakefield. In Q3 2022, a total of £1.17bn was invested, up from the £600m recorded in Q3 2021. 

Cushman & Wakefield attributes the 95% uptick in investment volumes in Q3 2022 to the size of the deals transacting, which were much larger than last year. Despite economic headwinds, investors remained attracted to the long-term opportunities the rental market presents, with an acute shortage of supply and a growing pool of tenant demand. 

In Q3 2022, the largest forward funding deal was Watkin Jones’ £200m deal with L&G in Cardiff, which will deliver 715 Build to Rent apartments at the former Brains Brewery site in Central Quay.

Watkin Jones also agreed another forward funding deal of £100m with DWS for its Lower Bristol Road site in Bath. Due to complete in 2025, the scheme will deliver 316 sustainably designed homes.

“Build to Rent has attracted a lot of investment so far in 2022, from existing and new institutional investors. It is inevitable that the wider economic uncertainty, as well as construction costs and debt will impact investment volumes over the coming months. Still, with a chronic shortage of homes to rent in the UK and a growing number of renters, the market offers buckets of long-term potential and has a track-record of performing well in economic downturns.” 

Millie Todd, Head of Residential Research, Cushman & Wakefield

Buy-to-let exodus provides opportunity for Build to Rent

There are currently 74,000 professionally managed complete units in the UK, although the Build to Rent market grew by 13% in the last year. At the same time, buy-to-let properties are being withdrawn as private landlords continue to exit the market. 

This chronic shortage in supply is being met with a growing number of renters, up from 3.6 million households in 2010 to 4.4 million in 2021. Due to a growing population and first-time buyer affordability constraints, Cushman & Wakefield forecasts that demand for rental homes will continue to outstrip supply.

Sector turns to more affordable products

With rental affordability a growing concern in the UK, Cushman & Wakefield has seen a shift in the sector towards delivering more affordable and mid-market products. These are aimed at tenants who are looking for professionally managed properties, with good energy credentials. 

“Rising living costs is putting huge financial strain on some UK renters, compounded by the longstanding imbalance between supply and demand which continues to drive rental growth. Build to Rent is poised to plug some of the rental supply gap, which has been worsened by private landlords exiting the market. We are seeing the sector move towards delivering more affordable schemes that cater to a wider demographic with the appeal of being professionally managed, energy efficient and well-located rental homes.” 

Millie Todd, Head of Residential Research, Cushman & Wakefield