What trends are driving the BTR sector and what is in store in 2020?
Our alternative markets research expert Rebecca Shafran comments:
Build-To-Rent is a fast evolving and emerging sector of the real estate market and is expected to continue to grow rapidly over the next 10 years. In 2019 there were almost 150,000 build to rent units either completed or planned across the UK. The UK housing market remains supply constrained, and the estimated growth in the UK population alongside barriers to home ownership, is expected to apply further pressure on the rental market.
What are our key trends in BTR to watch out for in 2020?
1) The sector drivers are now widely recognised across the institutional market and consequently, activity has picked up pace. Investors are attracted to income on asset-backed operational real estate and the diversification benefits on offer. In 2019 the market recorded some large investments from US funds, and in Q4 it was reported that British Land had progressed in its plans for its first BTR scheme in Aldgate. We expect more traditional real estate owners to follow suit along with other new entrants as the sector continues to gather momentum in 2020.
2) As a result of new players in the sector, we anticipate a rise in construction starts in the sector. In 2019 the BPF reported 35,760 units under construction but a further 77,446 in the pipeline with planning permission. New units will complete and there will be a high proportion of new starts too, split between London and the regions.
3) Whilst London will remain a key BTR location, we expect accelerated market growth in the regions in 2020. London has accounted for a substantial share of BTR projects so far, but the cost of entry in the capital plus strong market fundamentals in other cities, is driving investors to look elsewhere for opportunities. Manchester and Birmingham have already received significant investment and we expect to see further growth in BTR across strategic locations such as commuter towns with good transport links to the major cities.
4) Moreover, interest from investors for opportunities in the suburban BTR family home product will rise. To date, most schemes have been urban focussed but the demand for rental family homes in more suburban locations is increasing as affordability issues in the housing market is resulting in a growing number of households finding themselves as long-term renters. These homes will have to offer the amenities found within the urban BTR products but must be tailored to families.
5) Lastly, BTR will emerge across the wider residential market in different ways. Co-living will feature more prominently across some schemes, albeit solely focussed with major city centres. This sector will be supported by innovative prop tech platforms such as CoLivMe, matching co-living spaces with operators and end users. Additionally there will be an increase in rental model operators across the retirement living space, and a rise in affordable key workers rental accommodation providing homes for public sector employees. We think these trends will be more prevalent in 2020 and certainly the ones to watch.
For further insight on the sector please view our blogs entitled ‘In London’s war for talent, housing affordability rises up the boardroom agenda’ and ‘Is the UK’s housing crisis restricting business growth?’