Knight Frank’s Q4 2023 BTR update

New research from Knight Frank’s Q4 2023 Build to Rent update highlights key investment themes in the sector.

London and the Thames river | Knight Frank | BTR News

Despite a volatile economic backdrop, Build to Rent investment levels hit a new record last year – boosted by a strong final quarter. Single-family housing (SFH) Build to Rent also reached new heights with a surge in regional transactions, according to research by Knight Frank in its latest Q4 2023 market update.

Investment in Build to Rent reached £4.6bn in 2023, boosted by the £1.9bn investment activity in Q4 2023 – which is the strongest-ever quarter for the sector.

Knight Frank highlights a leap in SFH investment last year, increasing from £388m in 2022 to £1.9bn in 2023. In Q4 2023, £1.1bn was invested – which is over half of all Build to Rent investment over the three month period. This was largely down to Vistry’s sale of over 1,500 SFH Build to Rent homes to Blackstone-backed operator Leaf Living.

The boost from SFH also means that Build to Rent investment surpassed the student accommodation sector for the first time since 2018.

Given the increase in SFH, Knight Frank’s data shows that the regions accounted for 77% of all of the investment in the sector last year, with London accounting for 23%. This is a change from 2022 where investment into London Build to Rent represented 42% of the sector. In 2023 – and excluding SFH – the investment spread was even more, with London accounting for 38% of investment.

The increase in transactions in Q4 2023 has given investors more confidence on pricing metrics and yield positioning – which will further facilitate investment. According to Knight Frank, more forward funding and developer joint venture opportunities should emerge, as construction cost hikes level off, inflation recedes and contractor competition increases.

According to Knight Frank’s BTR Rental Index, annual rents increased by 5.5% in the year to November 2023. The company expects the sector’s rental growth to remain positive this year, and with the supply/demand imbalance, Knight Frank state that this will keep rents rising in 2024 above the long-term average.

The current total number of Build to Rent homes is 244,000 – 100,000 completed homes, 67,000 under construction, and 77,000 in planning. Within the total number of homes, SFH accounts for 24,000 and co-living accounts for 18,000 homes – either complete or in the pipeline.

Momentum is set to continue in 2024, with Knight Frank’s agency and valuations team tracking an additional £1.1bn of Build to Rent, SFH and co-living transactions that are either under offer or due to complete early this year.