The UK’s build-to-rent sector saw a flurry of activity in Q3 2023, with 18 transactions taking place and investment volumes totalling £448m, according to Savills and the British Property Federation.
BTR now accounts for 10% of all UK real estate investment, demonstrating the resilience of the asset class and its continued appeal to a global investor pool.
Despite the increased proportion of investment being taken by BTR, investment in Q3 fell by 53% compared with Q3 2022, which saw £960m enter the sector.
Investment for the 12 months to Q3 2023 was £3.5bn, which was 38% down from the £5.6bn invested in the year to Q3 2022.
The research also shows a record number of homes under construction, at 59,043, despite a slowdown in starts owing to economic headwinds.
There were 92,140 completed BTR homes across the UK, an 11% rise year-on-year. The sector is also expanding its reach, with the number of local authorities that have BTR properties in their planning pipelines reaching 200 for the first time, up from 177 in Q3 2022.
In addition, there are 112,511 homes in the planning pipeline, including those in the pre-application stage. The total size of the sector is therefore 263,694 homes.
The report found that while Northern Ireland’s first BTR scheme began construction in Q3, starts in London remained subdued, owing to the continued impact of the heightened cost of debt and changes in regulations around second stair cores.
Starts in the regions were more resilient at 3,339 homes, slightly down on the very strong Q2, but far above Q1’s 1,543 homes. This was bolstered especially by the growing number of single-family housing schemes, with 20 having begun construction so far in 2023.
The BPF warned that BTR’s impressive annual growth could stall due to sharp increases in build and finance costs.
Total construction starts slumped in the capital, with London seeing just 434 units in Q3.
Ian Fletcher, policy director at the BPF, said: “There is huge demand for purpose-designed homes for rent in London and major cities, but the sector is facing significant headwinds in terms of delivery. Uncertainty on inflation and where interest rates will peak is causing projects to stall, particularly in London where developments are typically higher-density and more complex.”
But he added that there were nearly 60,000 homes with detailed planning applications in the sector, suggesting that market activity could pick up quickly when conditions are right. “Policymakers must recognise more support may be required to sustain the growth of the sector in the short-term,” he said.
Polly Simpson, head of multi-family development at Savills, said: “The proportion of UK real estate investment going into BTR has been record-breaking in 2023 as investors continue to diversify their real estate holdings towards the living sectors.
“Q3 saw the single largest transaction of the year, between Long Harbour and St George, and the beginning of Q4 has already seen multiple transactions close. With 10% of all UK real estate investment now going to BTR, and with its proven inflation-hedging credentials, this is a major asset class and we expect continued growth in its share of investment allocations moving forwards.”
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