Regions get over three quarters of single-family housing investment

UK regional cities captured 77% of investment deployed into the UK single-family housing sector in 2023, versus just 23% for London. The was a large shift from 2022 when London made up 42% of the market, according to Knight Frank. The agency said that investment in the UK build-to-rent sector hit a record £4.6bn in 2023, driven by exceptional growth in the SFH market, which accounted for over 40% share of total BTR investment. The full year total was boosted by “an exceptionally strong” Q4, which saw £1.9bn transacted, a 126% increase compared to £850m in Q4 2022. One major deal transacted last year which contributed to the boost of the sector’s performance, was Vistry’s £573m sale of over 1,500 SFH homes to Blackstone-backed Leaf Living. Knight Frank also noted that North American and Asia Pacific investors provided a lift to the UK SFH sector, with their market share expanding compared with recent years. The firm revealed that UK investors still dominate with a 53% share, but appetite from overseas continues to rise. Knight Frank partner in residential investment Jack Hutchinson said: “The growth in SFH investment was the standout story in this record-breaking year for BTR. “The scale and pace of investment, especially from single-family operators and overseas capital sources, demonstrates how much momentum there is behind the BTR concept. “While we have experienced a challenging year from an investment perspective, with increasing build and development costs, as well as higher interest rate environments, BTR has maintained the ability to shine through the economic storms and address the chronic shortfall in rental housing stock, making it an increasingly coveted asset class.” Knight Frank head of BTR research Lizzie Breckner said: “Our data shows the exponential rise of SFH from less than £20m in 2020 to £1.9bn in just three years. “Investors are betting on the structural undersupply of mid-market family rentals in the UK, as affordability pressures become more acute following the removal of government support for first-time buyers and higher mortgage costs.” Breckner added that Knight Frank expected continued strong growth in the sector and was already tracking a further £1.4bn of SFH and MFH deals under offer or completing in early 2024. Knight Frank head of residential investment Nick Pleydell-Bouverie said: “While elections and geopolitical volatility continues to bring uncertainty, inflation is projected to steadily drop in 2024, bringing down debt financing costs, which is materially improving investor sentiment. “Oxford Economics predict the base lending rate will end 2025 around 3.2% after a series of cuts in 2024. In this climate, joint ventures and forward commit investment deals are increasing as investors seek to share risks and defer major cash outlays. “Meanwhile, softened yields and strong rental performance are attracting increased capital to the sector.” Photo © Geoffrey Swaine/Shutterstock