BTR Report 2024

Research - 22/02/2024

BTR sector must embrace affordability to sustain continued growth

Sector’s growth to be driven by mid-market and regional opportunities

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The UK’s burgeoning Build to Rent (BTR) sector must embrace mid-market and regional needs if it aspires to be part of the solution to the ongoing housing crisis. In its newly released Build to Rent Report, property consultancy Lambert Smith Hampton (LSH) suggests that the next phase of BTR growth will depend on its ability to provide more affordable products and schemes tailored to regional market demand.

Download the Build To Rent Report 2024 here →

The BTR sector has grown rapidly over the last decade but there remains enormous room for growth into the next cycle. With 96,091 units completed by the end of 2023, BTR still only accounts for about 2% of the UK’s total private rented stock. A further 66,927 units are under construction, and 113,909 are in the longer-term planning pipeline. At current growth rates, the sector is projected to double in size within the next five years.

BTR was once synonymous with apartments aimed at young urban professionals, but it now increasingly encompasses a broad range of housing solutions, including mid-market schemes, suburban properties, and homes aimed at families and older renters. The next wave of BTR development – dubbed ‘BTR 2.0’ by LSH – will increasingly focus on delivering these homes for which demand is most acute.

As well as embracing new types of homes, BTR is also spreading into new locations. To date, development has been largely concentrated on London, Manchester and Salford, which collectively account for about two-thirds of the UK’s built BTR stock. However, more than half of the development pipeline is in other markets.

While major cities such as Birmingham, Leeds, Edinburgh and Glasgow are hotspots for new schemes, development is yet to really ripple out to smaller towns and cities. LSH’s research reveals a myriad of potential BTR locations that remain largely untouched by developers, with locations including Portsmouth, Plymouth and Norwich being among those with the greatest untapped promise.

The report argues that a re-thinking of amenity levels is key to making BTR work in these non-core regional locations. While on-site amenities such as gyms, co-working facilities, cafés, cinema rooms and resident lounges are features of many higher-end BTR products, these may not all be viable in smaller markets. BTR operators must be prepared to scale back amenities, while still offering a quality of product and service that distinguishes itself from the local PRS competition.

Investment in BTR reached a record £4.5bn in 2023, slightly ahead of 2022’s previous high. In an illustration of the sector’s broadening scope, this record was entirely driven by the emerging single family housing (SFH) segment, which accounted for 42% of all BTR investment. The increase in SFH deals was largely due to housebuilders’ increased willingness to make bulk sales of homes to investors in the face of falling sales of individual units to the wider public.

This trend is expected to provide a continued boost to investment volumes in 2024 and beyond. LSH predicts that improving conditions in the financial markets, alongside the sector’s compelling fundamentals, will drive another new record year for volume in 2024, rising to over £6bn and accounting for as much as 15% of the total UK CRE market. This market share is expected to remain preserved into the new cycle, particularly as more up and built stock begins to change hands.

Simon Wilson, Head of LSH Living & Capital Markets, commented: “The BTR sector continues to offer huge growth potential. It is at the heart of a growing living family, which also includes co-living, senior BTR, PBSA and SFH homes. Collectively, these will accommodate increasingly large sections of the UK population over the coming years. To sustain this growth, developers and operators will need to create affordable solutions suited to locations that are currently underserved by BTR, which may mean adjusting unit mixes or scaling back on-site amenities to improve viability in the face of continuing build cost challenges.”

Ewen White, Director – LSH Living & Capital Markets, added: “While 2023 was a record year for BTR investment, the surge in SFH activity disguised a slowdown in transactions for more conventional multifamily BTR assets, as higher interest rates impacted the market. However, a more benign interest rate environment should support a rebound in forward funding deals for core BTR assets in 2024. Coupled with continued SFH activity, we forecast that a new record volume of over £6bn will be achieved this year.”

Download the Build To Rent Report 2024 here →

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