BTR and SFR Remain Top Preference
The structural factors underpinning Build to Rent and Single-Family Rental continue to ensure these sector remain a top preference for investors.
Against an uncertain macro backdrop, the structural factors underpinning Build to Rent (BTR) and Single-Family Rental (SFR) continue to ensure these sectors remain a top preference for investors. Admittedly, some steam has come out of the market. Rental growth continued to show signs of cooling in Q1 2025, although remains above long-term averages; 7.7% in the year to March 2025, vs. 3.7% over the last 10 years (source: ONS). Zoopla noted that the supply/demand imbalance has narrowed, with declining number of enquiries per home for rent, however levels remain above those seen before the pandemic. Additionally, rental affordability is being stretched in some locations.
However, the supply shortfall is unlikely to improve much in the short term as the squeeze on development viability has led to falling construction pipelines in the sector. This is likely to keep some pressure on rents, albeit rental growth is unlikely to be at the very high levels seen over the last two years. According to Glenigan, project starts, main contract awards and detailed planning approvals in the residential sector all decreased in the three months to March 2025 compared to a year earlier and the preceding quarter.
Of note, however, was the 24% increase in major project starts compared to the previous 3 months (£100m+; source: Glenigan). This was also mirrored by a number of BTR sites that were granted planning permission in Q1 including Dandara Living’s 308-unit scheme in High Wycombe, Redevco’s 391-unit scheme in Glasgow, and The Pickstock Group’s 355-unit scheme in Stratford.
Additionally, the Planning and Infrastructure Bill was introduced to Parliament in March and was welcomed by the industry. The Bill is wide ranging in focus with several stated goals. These include boosting housing, infrastructure, and clean energy as well as building on proposals set out in the National Planning Policy Framework (NPPF) and commitments to planning regime reforms. Overall, these reforms should be a positive factor for the delivery of supply in this sector.
A Fairly Robust Start to 2025
The year kicked off to a fairly robust start in BTR and SFR with transaction volumes in Q1 2025 in line with average first quarter volumes reported over the last 10 years. Provisional total investment volumes hit c.£1.1bn.
Positively, there were a mix of standing stock, portfolio transactions and forward funding deals across London and the regions, in Q1. This was after a slowdown was noted in development projects towards the end of 2024 as a consequence of squeezed viability.
As an example, Barings broke the record for the largest ever forward funding deal in Leeds, with £152m deal with Glenbrook at a scheme on Kirkstall Road.
The portfolio activity was mostly in the SFR submarket where the newly formed £750m joint venture between Greykite and Gatehouse purchased an additional six sites from Persimmon Homes for £60m after buying eleven sites from the same housebuilder in Q4 2024. Similarly, the new joint venture between Kennedy Wilson and CPP committed £213m to purchase 650 SFR homes across different sites in locations including Norwich and Stevenage, from three separate housebuilders. The size and scale of these investments continue to grow and highlight the increasing allocation towards the SFR market from significant market players.
Moreover, these partnerships and new market entrants have become an increasingly frequent feature of the BTR and SFR sectors. In March Japan’s major housing developer, Nomura Real Estate Development, and L&G announced a new partnership with a target to deliver more than 1,000 new rental homes, with a focus on London. Their first site was acquired in Q1 in Lambeth.
“The PBSA sector continues to evolve as a resilient and in-demand asset class, driven by rising student populations, increasing expectations for quality living and the appeal of UK higher education. Whilst activity was muted in Q1 2025, the appetite amongst investors for PBSA remains strong and with several portfolios reportedly now in the market, it is expected that we will see higher levels of activity as the year progresses.” Lindsey Lock, Senior Director, Valuations
