Why 2022 will see a boom in the suburban Build to Rent market

The bulk of investment has gone into the traditional city centre model, but signs show 2022 will see an increase in the suburban Build to Rent market.

Clive Docwra, Managing Director, McBains talking about further investment into the suburban Build to Rent market | BTR News
Clive Docwra, Managing Director, McBains.

By Clive Docwra, Managing Director, McBains, a property and construction consultancy

The Build to Rent sector has gone from strength to strength over recent months. Figures show that £2.35bn was invested in the UK Build to Rent sector in the first half of this year – an 80% increase compared to the same period in 2020, with predictions that 2021 as a whole will see record levels of investment. Build to Rent has also proven its resilience in the face of difficult times too: planning permissions increased by 52% in the pandemic year.

To date, the bulk of Build to Rent investment has gone into the traditional model of city centre apartment blocks in urban areas, aimed at young professionals. But the signs are that 2022 will see a rapid increase in the suburban Build to Rent market.

Covid-19 has certainly accelerated the attraction of Build to Rent for many families. More renters are seeking homes outside of city centres that possess the sense of community that sustained them during the pandemic. And, as the hybrid working model is now here to stay with large numbers of people continuing to work from home at least some of the time, families are looking for homes that accommodate adequate workspace and smart technology. That’s borne out by a survey by Build to Rent operator Wise Living, which found 85% of tenants want instant connectivity including superfast broadband, and three quarters wanted smart lighting, heating and security systems. 

The property industry is showing signs of responding to these trends. According to a new report by Knight Frank, 75% of developers are more likely to consider creating home offices in future building projects, and 77% are now more likely to provide touch-free tech in their products.

And while such add-ons put property at a higher premium than a more basic rental, this changing rental demographic – an older adult market – means many are willing to pay for it, meaning greater returns for investors. A new report by Savills found that where suburban Build to Rent has been delivered, there is evidence of very strong tenant demand. The Thistle Portfolio which Goldman Sachs purchased in early 2021 has had consistently high occupancy in excess of 97%. When new schemes have completed, they have been very quick to let, in many cases letting as quickly as the units complete. What’s more, the majority of single family housing tenants are less transitory in nature, reducing the risk of tenant turnover and producing more reliable income streams. At the same time, increased regulations and tax changes are pushing private landlords out of the traditional Buy to Let market, meaning many such landlords will sell up, leaving a vacuum that still needs to be filled.

The untapped potential of the suburban Build to Rent market can also help the property industry navigate the end of Help to Buy and the stamp duty holiday, two policies that have helped sustain the housebuilding market for the last few years. As the Savills report shows, 57% of new build sales in the past three years have been supported by a Help to Buy loan nationally, with some areas reaching as high as 62%. But with the scheme restricted to first-time buyers and new regional price caps introduced from April 2020, this will reduce its usage. Investment in suburban Build to Rent means housebuilders can continue to deliver homes at scale to compensate for this loss.

Up until very recently, the suburban Build to Rent sector has lacked the same concentration of institutional investment, with less than 1% of the market having benefited from capital investment compared to around 6% for the urban sector. However, late last year (2020), Legal & General unveiled a new dedicated suburban Build to Rent arm to bring forward more than 1,000 homes annually; last month, it was announced that Present Made is to build 370 family homes in Eddington, a suburb of Cambridge; while in August, UK challenger bank Gatehouse outlined plans to build 2,500 single-family rental homes, with the initial sites in the Midlands, Greater Manchester and Merseyside. At McBains, we’re also exploring a number of suburban Build to Rent sites.

These strong fundamentals – and resilience during adverse market conditions – should spark further interest in the sector from investors. 2021 may already be a record year for Build to Rent, but my prediction is that 2022 will surpass it, and we’ll see more major deals done in the suburban Build to Rent market in particular.