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Increasing Build-to-Rent market spells good news for tenants

Rent Guarantor Nov 06, 2019

While there’s plenty of worrying news about the supply of private rental sector properties in the buy-to-let industry, a recent report from global property firm Knight Frank has some good news for tenants. According to its latest London residential development survey for the second quarter, the number of Build-to-Rent developments is on the rise yet again.

The latest report shows 28% of residential development units in the English capital were investment grade Build-to-Rent properties. This suggests that although PRS BTL landlords are losing confidence in the industry, larger residential investment developments are growing in popularity, which is a positive piece of news for the still growing number of tenants across the UK and in cities in particular.

Who’s investing in Build-to-Rent?

As UK PRS landlords are showing an increased propensity towards reducing their portfolio, news of an increase in the rate of growth in the Build-to-Rent market comes with some questions, including, who exactly is investing in the industry?

According to Knight Frank, Build-to-Rent developments in the UK began to gain popularity some ten years ago. This was due to a combination of:

  • Increased demand for rental homes in the UK.
  • Appetite from various investment vehicles to diversify into this growing UK market.

Institutional investment is the main driver of the Build-to-Rent market, so Funds for pension investments, both UK-based and from overseas are notable participants in the industry. And, the property management’s yield guide shows that investors into London’s Build-to-Rent industry can expect to achieve the following rate of annual yield:

  • 3.50-3.75% for prime developments in zone 2.
  • 3.75% for prime developments in zone 3-4.
  • 4% for prime BTR developments across Greater London.

That’s an attractive long-term prospect for investment Funds.

BTR development growth is good for all residential tenants

While Knight Frank focuses on prime BTR developments in London, that’s not the only sector that’s benefitting from the improved appetite for the industry in the UK. According to recent research from the British Property Federation, there are some 148,046 build-to-rent homes that have been recently completed, are currently under construction or in the planning stages across the UK. That’s a 20% rise on the same period a year earlier.

And following the success of previous BTR developments, the report also shows the size of planned BTR developments is rising. Completions, construction and planning of BTR developments of between 100 and 500 units have proved popular and there are also more developments with over 500 units now in the construction and planning stages.

While 51% of the BTR developments are in London, it’s good to know that the remaining 49% are spread throughout the regions.

“The build-to-rent sector continues to attract investment and deliver much needed homes. Not only do we have an impressive 31 per cent growth in completions between Q3 2018 and Q3 2019, but the pipeline of new projects is also strengthening,” said BPF Director of Real Estate Policy, Ian Fletcher. “Right across the country we are seeing growth in the sector, allowing people to access high quality, institutionally-managed rental properties.”

This is positive news for tenants indeed and even if institutional landlords prefer a more standardised approach, which may or may not include the use of rent guarantors as standard, this is something that can only help to raise confidence in the sector and ensure even more rental homes are built in the coming years.

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