The build-to-rent sector is on track for a year of record investment as property investors are seeing the benefits of this kind of investment.
New data from Knight Frank shows investment in the build-to-rent market hit £2.35bn in the first half of 2021. During the first quarter of the year, over £1.27bn was invested, and £1.08bn was then invested in the second quarter. This is nearly a 80% increase in investment volume from the same point in 2020.
This strong level of investment for the first half of the year puts the build-to-rent sector on track to beat the record £3.7bn invested last year. There has been a substantial increase in appetite from both existing investors and new entrants.
Existing investors are looking to expand their property portfolios into new sectors. And many new entrants are looking to diversify their portfolios. In the coming years, the build-to-rent sector will likely continue to see strong investment volumes.
The UK’s regions have been seeing more investment in build-to-rent developments. In the first six months of 2021, some 70% of funds committed were for schemes outside the capital. This shows investors are confident in regional markets. At the same time, more build-to-rent development opportunities are being brought forward outside of London.
Knight Frank’s data suggests 58% of all schemes of 75 units or more either under construction or with planning will be delivered in regional areas. Birmingham in particular has attracted the most investment by value so far in 2021 after London. There is also growing demand in Tier 2 cities such as Leicester, Southampton and Derby.
Throughout the pandemic, the build-to-rent sector has performed particularly strong and resilient. According to Knight Frank’s income survey, average monthly rent collection rates have remained above 96% so far this year.
Rental growth in the market has been particularly strong outside of London. Lifestyle changes due to coronavirus and the race for space in the sales and rental markets have caused an increase in demand for build-to-rent developments outside of the capital.
Increasing tenant demand
Tenant demand across the UK rental market is at high levels, while new supply still remains limited. The build-to-rent sector is providing a solution to the growing demand for high-quality rental properties that reflect modern living.
As there is a widening gap between new tenant demand and supply, this is putting upwards pressure on rental prices. The latest ONS rental index indicates rents have increased by 1.1% annually across England. If London is excluded, this figure rises to 1.7%.
Rental values are expected to increase further this year as there continues to be surging demand and limited supply. Knight Frank has also revised its expectations for the UK’s rental performance in the short and medium term.
The estate agency consultancy forecasts rents to increase by 2% in 2021 and 15% over the next five years. This may provide optimism for some property investors on the potential of the UK rental market’s performance in the years to come. And there is room for further growth in the build-to-rent sector in particular.