The UK property market is experiencing a significant shift as small landlords struggle to cope with mounting pressure. This has created a lucrative opportunity for build-to-rent investors, who are swooping in to meet the increasing demand for rental housing.
The Changing Landscape
According to Andrew Saunderson, who heads CBRE Group’s UK Residential Capital Markets division, the days of tax incentives for buy-to-let investors are long gone. As inflation surges, construction costs have risen, making it necessary for investors to generate higher yields. Despite a decline in housing starts, investment in purpose-built rental housing has surpassed £2 billion in the first half of the year, as reported by Savills. Experts at Jones Lang LaSalle project that the build-to-rent sector could capture a 10% market share within a decade, a significant increase from the current 1.5% share.
Driving Forces behind the Shift
Several factors are driving this shift in the property market. Firstly, the highest mortgage rates in 15 years are causing aspiring homeowners to remain in the rental market for longer. Furthermore, the share of pensioners renting in England is expected to double over the next ten years, presenting a lucrative opportunity for investors to tap into the additional billions spent on rent by an aging population.
Key Players Embracing Build-to-Rent
Prominent investors have seized this opportunity and made substantial investments in the build-to-rent sector. Greystar Real Estate Partners, for instance, has built up a portfolio worth at least £6.5 billion over the last decade. In collaboration with the Abu Dhabi Investment Authority, Greystar recently acquired a former biscuit factory in south London for redevelopment.
Conversely, some small landlords are choosing to exit the market. Karen Gregory, a landlady running her own lettings management business, was forced to sell her rental property in north London due to increased mortgage payments after her deal ended. This trend is causing a decline in rental supply, with consultancy TwentyCi reporting that the number of rentals available has reached a 14-year low.
Expansion and Opportunities
The build-to-rent trend is not limited to London. Outside the capital, deals accounted for 90% of the spending in the first half of the year, according to Knight Frank. Developers are looking for new revenue streams amidst high interest rates, leading to the emergence of build-to-rent projects across the UK. Even the nation’s largest listed developers, traditionally focused on building properties for sale, are diversifying. Barratt Developments, for example, is driving revenue through private rental sector sales, while Vistry Group has announced plans to build 400 rental homes for landlord Grainger in west London.
Conclusion
The rise of build-to-rent investors presents a golden opportunity for individuals considering property investment. With small landlords struggling to cope with increasing pressures such as rising interest rates, regulation, and taxes, build-to-rent projects offer a stable and profitable alternative. The sector is booming, with billions of pounds being invested in purpose-built rental housing. As the UK property market continues to evolve, build-to-rent investments are poised to thrive, providing a win-win scenario for both investors and those in need of quality rental accommodation.