Over the past nine months, the Build To Rent Single Family Housing sector has attracted investments exceeding £1 billion. This momentum isn’t expected to stop soon. Sources suggest investors are gearing up to infuse a staggering £25 billion over the next five to ten years. 2023 emerged as a landmark year for this segment, punctuated by significant deals, such as Project Domus – the acquisition of 918 homes in the North West by PGIM from Goldman Sachs.
Housebuilders Adapting to New Dynamics
Recent slowdowns in the sales rate of new builds have prompted housebuilders to consider the potential of the SFH market. And while housebuilders in the UK are showing increased activity, selling nearly 2,000 homes to institutional and other large-scale investors, the supply remains constricted. There’s a noteworthy 18.5% dip in available rental properties when compared to averages from 2017 to 2019.
Why is Supply Limited?
One reason Savills highlights for this dip is a reduction in the turnover for rental properties. A significant factor is buy-to-let landlords exiting the housing market. Data suggests an upward trend with 43% of landlords, as of Q2 2023, planning to sell their properties within the coming year.
Expert Opinions on the Market
Piers de Winton, a leading voice from Savills on national residential investment and SFH, opines, “Demand continues to overshadow supply in the SFH market. This property shortage is ramping up demand for rental homes, which could lead to a rise in rent costs.” He adds, “With homeownership aspirations dwindling in high-interest scenarios, the appeal for rental properties near schools, parks, and healthcare centres is growing. If SFH wants to answer the UK’s supply woes, a considerable scaling up is imperative.”
Shifting Geographic Focus
While the North West traditionally dominated the SFH sector, recent times have seen a geographical pivot to the Midlands and the South. Astoundingly, 95% of investors are now eyeing the South East, with 85% focusing on the Midlands and 80% on the South West. This transition stems from the potential for rental growth and the aim to diversify portfolios. Investors are also aligning with regions experiencing heightened housing demand.
A Green Perspective: Sustainable Developments
In light of the global push towards sustainability, the SFH sector hasn’t remained untouched. Savills reports a growing interest in sustainable housing projects. Their research indicates a majority of SFH homes flaunting EPC ratings of ‘B’ or better. This is promising, especially when considering future prospects: all investors are vying for at least an EPC ‘B’, with 21% even targeting an EPC ‘A’. This aligns well with the broader objective of elevating the quality and energy efficiency in the Private Rented Sector, where a concerning 58% of dwellings presently rank at EPC ‘D’ or below.