The UK build-to-rent sector (BTR) has attracted over £1.1bn in investment during Q1 2023, according to initial data from BNP Paribas Real Estate.
The strong investor appetite for the UK BTR sector can be attributed to the rising rental demand, especially as first-time buyers are challenged with affordability issues. The removal of Help-to-Buy and the recent increases in mortgage rates has worsened the situation.
BTR in regional cities
Around 75-80% of the Q1 2023 investment activity is allocated outside London in major regional cities including Birmingham and Manchester, as well as in single-family housing in suburban areas, according to the BNP Paribas Real Estate research.
However, the firm is seeing increased interest in London and London commuter belt development opportunities as new investors seek out lower risk locations.
There has been an 11.1% annual increase in rents to January 2023 in the UK and a 15.2% increase in London, according to data from Zoopla.
Significant uptick
Rebecca Shafran, senior associate director, alternative markets research says, “Whilst other sectors have noted a more obvious slowdown in investment activity, the BTR sector has recorded a significant uptick of recent, particularly across both regional cities and in new territories such as single-family housing. Investors paused for breath after the turbulence as a result of Liz Truss’s leadership and the worsening economic conditions, but we can see resilience and strong rental growth has resulted in a strong start to the year, in line with comparative quarters where economic conditions were more positive.”
Andrew Screen, head of residential capital markets at BNP Paribas Real Estate adds, “Investment interest and allocation of capital remains strong across the entire living sector, led by BTR, student accommodation and single-family housing. New investors have also entered the market in the last 12 months with a lower cost of capital, increasing demand for investment opportunities and we anticipate a stark increase in transactions towards the end of the year, particularly across London, commuter belt and key regional cities. However, as it stands, higher interest rates are impacting investor levered returns, resulting in a shift of some investors towards higher yielding or value-add living sector investments.”
PGIM buys single-homes portfolio
Notable deals in Quarter 1 2023 include PGIM’s purchase of the Goldman Sachs portfolio for single-family homes in Manchester and Liverpool for £190m, the Harrison Street, NFU Mutual, and Apache forward funding on Moda’s Great Charles Street for £302m, and Realstar’s forward funding of Phase 2 of UNCLE, Leeds, for a reported £108m.
The report predicts there will be a significant increase in transactions towards the end of the year, particularly across London, the commuter belt, and key regional cities, as new investors enter the market with a lower cost of capital, increasing demand for investment opportunities. However, higher interest rates are currently impacting investor-levered returns, resulting in a shift of some investors towards higher-yielding or value-add living sector investments.
