The UK’s build-to-rent sector is probably the country’s property winner for 2016 and the coming year is set to be even better as investors and developers alike are showing confidence in the sector.
The Government has already made its support for the sector very clear, and investor are also showing interest despite the Brexit decision and any economic uncertainty that may come with that.
JLL recently revealed in a report that investors as well as developers continue to recognise opportunities in the country’s build-to-rent sector. For investors, one of the main turn ons is the security of rental income in London and regional cities the market brings with it.
London remains a dominant player in the market with the British Property Federation estimating a total of 30,000 purpose built rental units currently under construction or complete in the capital alone.
“The greatest opportunity for the development of large scale Private Rented Communities is undoubtedly in the major metropolitan centres, as evidenced by the activity around London and Manchester in particular,” said Simon Scott, JLL’s head of investment for UK Residential Capital Markets.
“This stems from the deeper letting pools and the ability to deliver scale. Having said that, the opportunity to develop purpose built rental stock, in an age where renting is no longer seen as a tenure of last resort, should provide opportunity for viable delivery in other less mainstream locations,” he added.
JLL’s head of residential research, Adam Challis, says that investors continue to seek improved yield positions, which is more likely to be found outside of London and England’s South.
Furthermore, the report pointed out that, regardless of looking in London or other regions in the UK, demand for this kind of property is building up across the whole country.
The disconnect is the limited new supply coming to the market and the lack of existing product. As a result, we expect to see development and investment activity growing substantially over the short to medium term.”
“New capital is competing effectively against incumbent UK residential investors, driving sharp pricing in markets such as London and Manchester. However, established investors retain an advantage as they are often more nimble and can target opportunities in secondary and tertiary cities. This has resulted in several large scale residential deals in new markets,” he explained.
“This investment into new markets is vital for further expansion of the asset class, providing broader choice and diversification for the next wave of investors in stabilised portfolios,” Scott says. “It will also demonstrate the big opportunity for new private sector investment to support regeneration activities in many UK communities,” he added.
Scott explained that the real attraction of residential investment is the variety of product that can be created to suit all risk/reward appetites. “There is a structural shortage of residential accommodation in the market, and ever growing demand pressures, so the positives significantly outweigh any perceived risks,” he said.
“The Government is increasingly supportive for a significant increase in provision of supply, so our expectation is that the sector is likely to grow, with the pent-up demand for the right product offering significant opportunity for investors and developers,” he added.
Challis added that support from politicians and planning authorities for build-to-rent is growing, and will help to get new stock developed.
This, perhaps more than anything else, is the most important ingredient needed for the sector to flourish.”