As the private rented sector continues to flourish, opportunities in the ‘build-to-rent’ sector are soaring as investors tap in on the changing dynamics of the housing market.
A new report released by global real estate firm Savills has highlighted the massive growth that is still to be seen in the burgeoning build-to-rent market in the UK – with projections that the sector could be worth almost £550bn when it reaches full maturity.
Right now, according to the report, the space is still extremely competitive and growing rapidly. While the total completed stock is only worth an estimated £10bn currently, the impressive projected expansion is great news for property investors looking to get involved.
Why is build-to-rent different?
Build-to-rent is still a relatively undiscovered arena. It refers to properties (often apartment blocks but not exclusively) which are built primarily for renting households. They cater for renters in a different way to traditional buy-to-let properties, offering additional amenities and aiming to create communities where tenants often stay for longer periods of time.
While occupiers must weigh up the slightly higher cost that can come with the added extras on offer, they can be hugely popular among the country’s young professionals, particularly as growing numbers of people are now seeking to live in convenient, city centre locations, which is where a lot of build-to-rent opportunities are popping up.
A booming sector
Total investment in the sector hit £2.6bn last year, according to Savills, which is 11% more than in 2017 and gives a good indication of the level of growth we are seeing.
“There’s at least a decade to go before institutional private rent reaches maturity. This means there is still scope for seismic shifts in the sector.”
Growth outside London
With 140,100 homes in the pipeline across the UK, Savills estimates that the current total value of completed properties is around £9.6bn – which makes up just less than 1% of the total private rented sector housing stock.
The primary focus of the sector has been in London, but this is expected to change as the number of people leaving the capital in search of a better, cheaper standard of living elsewhere continues to rise. Manchester is one key city where the private rented sector and property investment are increasingly big business, and with more competitive costs as well as different planning policies there compared to London, investors in the sector are expected to push into the city.
Demand for rentals will keep growing
Homeownership is less of a goal than it once was. Renting offers flexibility, as well as allowing people to choose better locations for work as well as lifestyle which they might not otherwise be able to afford. Added to this is the fact that the Government’s Help To Buy Scheme is set to end in 2023, meaning more people may be renting for longer before they can afford to buy.
Long-term renting is something that could become more readily available in the future, with longer tenancies offering more stability to both the tenant and the owner, which suits the model of build-to-rent.
According to the Savills report, build-to-rent developments that really focus on their target market will be the most successful.
It says: “When providing amenities on schemes, BTR developers need to think about what provides actual value to residents as opposed to headline-grabbing novelty.”
It is important to “foster a sense of community, encouraging residents to stay in the scheme longer and decreasing void”.
How this impacts the wider buy-to-let market
While the Savills report focuses on the growth of the build-to-rent sector in particular, it is important to note how changing trends impact the wider rental market. As we reported recently, renters in the UK are expected to outnumber homeowners by 2039, and the growth of build-to-rent is just one symptom of this.
While the rise of build-to-rent will boost the supply of property available to the country’s tenants, private buy-to-let investors and landlords will be sure to follow these trends closely as they still have the monopoly on the rental market.