It’s time to look beyond Build to Rent in London

As the London market continues to go from strength to strength, developers and investors are looking for the next Build to Rent hotspot.

Close-up view of typical riverside balconies in London - EG | BTR News

Once comparable to a statistical blip in the UK rental sector, Build to Rent has been on a big journey with the number of Build to Rent properties doubling in the last five years. As the London market continues to go from strength to strength, developers and investors are increasingly looking for the next Build to Rent hotspot.

By Anna Reed, Data Director, EG

Growth and expansion

Build to Rent now accounts for approximately 7% of all new build homes in Britain and more than £4.7bn in annual investment. In fact, in the year ending March 2021, a record 38,000 new Build to Rent homes were built.

The increasing growth of the sector has seen investors in the market evolve, with financial services provider Legal & General and retailer John Lewis entering the market alongside the specialist firms that continue to drive a majority of Build to Rent developments.

This has supported the continued growth of the UK’s Build to Rent sector where it initially began, London. The capital now attracts more than half of overall investment in the sector, with larger deals being agreed. For example, in 2021 AXA IM purchased Dolphin Square in Pimlico for £800m which will bring 1,233 Build to Rent properties into the heart of London.  

This continued investment is seeing developments spreading throughout the city, with new homes planned for Old Kent Road as well as in Wembley and Wimbledon. The sector will also soon make its mark on London’s skyline as it features in the evolution of Canary Wharf.

As the market evolves and expands throughout the city, it’s financial return is also maturing. Outperforming the private rental sector, EG’s London data shows that one- and two-bedroom Build to Rent properties offer a 21% rental premium compared to traditional private rental properties.

Gathering pace outside of London

As the market matures, Build to Rent is beginning to gather pace outside of London, significantly evolving the opportunities available for investors and developers.

Although London leads the way with investment, one third of the £4.7bn invested this last year went to developments outside of the capital in Birmingham, Leeds and Manchester. Interest is also growing in other cities, including Bristol where Grainger is planning its third site and Brighton, where M&G Real Estate has purchased a 114-unit Build to Rent development. This aligns with the rebound of the private rental market post-pandemic, which has seen demand for properties in UK’s cities increase while supply remains constrained.

As demand for rental properties increases, their monthly value has also followed an upward trajectory while time on the market has plummeted, indicating their popularity.

In fact, EG’s latest data shows letting times of just three to seven days for Build to Rent properties in eight locations, all of which are based around the Midlands and North – Stalybridge, Greater Manchester, Crewe, Coventry, Heywood, Oldham, St Helens and Wednesbury. This is compared to more than 30 days in London and Edinburgh, and the UK average of 28 days for Build to Rent homes to let.

Adding to this picture is growing monthly rental value, which now averages at £1,786 across the UK. Rent varies city to city, however, Birmingham averages £1,352, Liverpool £1,251, Cambridge £2,240 and Edinburgh £2,207 – clearly demonstrating the opportunity for investors and developers outside of London.

Broadening horizons

With increasing demand for rental properties, it’s clear that the demand and opportunity for the Build to Rent sector is vast and only continues to grow. By looking to cities outside of London, developers and investors can support the development of the sector and provide new properties in regions with the most potential, namely the Midlands and northern cities.

Source: EG Premier Data, The Build to Rent Experience report, July 2022.