Across the South Coast, BTR is making significant progress, particularly in Southampton and Bournemouth.
In 2021, Grainger plc’s first BTR development in Southampton, Gatehouse Apartments, achieved record lease-up as the 132-home was fully let eight months ahead of programme.
Such is the demand in this sector that banks, property funds and other institutional investors poured a record level of money into BTR in 2021.
An additional 80% of capital was funnelled into BTR last year – some £500m more than in 2020, in spite of the pandemic.
As the chronic shortage of housing persists and the UK’s private rented sector continues to struggle to meet demand, the BTR revolution looks set to continue, with investment this year expected to exceed the £4.1bn highs of 2021.
The private rented sector has long been dominated by a patchwork of small buy-to-let landlords. BTR, by contrast, attracts global capital from the likes of Goldman Sachs, Greystar and Macquarie, as well as domestic players such as Lloyds Banking and even John Lewis.
Indeed, Lloyds is planning aggressive expansion in this sector, with intentions to build up a portfolio of some 50,000 rental homes by 2030 which would see them leapfrog Grainger plc.
This growing interest in gaining a slice of the BTR investment pie, sees close to £2bn worth of deals already in the pipeline for 2022.
What is Build-to-Rent (BTR)?
Build-to-rent developments are typically purpose-built blocks of flats operated by specialist corporate landlords. The concept is well established in Europe, where long-term renting in the norm.
The BTR model has been gaining momentum in the UK over the past 10 years, taking off in the last 18 months as new housing supply has struggled to meet rising demand for rental properties. With demand 43% above the five-year average, BTR schemes are coming to market to plug the gap.
BTR schemes often boast a range of additional facilities built in to suit modern, urban lifestyles – from gyms to coworking space.
Operators of BTR schemes also espouse the benefits of a more professionalised rental experience, which avoids the issue of unscrupulous landlords so prevalent in the private rented sector.
Many schemes also offer longer term tenancies and more predictable rents, making them much more appealing to the longer-term renters.
Meanwhile for others, BTR opens up additional housing options for those who are looking to buy in the future but who may be priced out of the homeowner market.
What is coming out of the ground, where?
The majority of BTR schemes are located in cities with increased housing targets, with Manchester topping the charts for BTR popularity.
- Barings, one of the world’s largest diversified real estate investment managers, acquired The Trilogy, in Manchester from Moorfield for £53.3m.
- Singapore’s CDL Hospitality Trust marked their entrance into the UK BTR market with a £73.3m deal with Fiera Real Estate and Packaged Living in Manchester.
- Packaged Living also acquired The Castings, east of Piccadilly Station, in partnership with Fiera Real Estate Fund. The scheme forms part of the Portugal Street Masterplan and will be one of the standout residential offerings in Manchester city centre.
- Elsewhere, Australia’s Macquarie, acquired its first UK BTR investment through new platform Goodstone Living, with Eutopia’s £130m Camp Hill Gardens in Birmingham.
- And in Liverpool, BMO agreed to forward fund a deal for 258 flats at Hughes House with £40m from their BMO UK Housing Fund.
- Meanwhile in London, AXA’s £800m landmark Dolphin Square purchase at Pimlico in 2020 was notable. Pocket Living, which is majority owned by US giant Related, is now delivering its first 400-unit BTR scheme at Old Oak.
Future flies in the BTR ointment?
Investor confidence in the BTR market is growing, but could there be potential flies in the BTR ointment?
There remains a perception problem with BTR which is yet to be overcome.
Some BTR developers have been criticised for delivering expensive flats that do not address the housing affordability crisis, with some claiming it only appeals to one type of (wealthy and middle-class) renter.
Forthcoming policy developments could also adversely affect the sector – from residential property developer tax which will introduce a new 4% tax on profits developers make, to the Planning Bill and the potential impact on BTR planning viability.
There also remains a cultural hurdle to be overcome in the UK. Here, our houses are very much our castles, with homeownership the aspiration of the majority.
Long-term renting, whilst on the increase, is not yet a fully-fledged trend. Only time will tell if this evolves to be the case, as younger generations come into the housing market.
What we do know is that the current housing delivery model is not working. BTR therefore represents an undeniable opportunity to address the housing shortage.
Here in Southampton, investors and developers have been quick to recognise this, including Grainger which is targeting the city for long-term investment.
With other pipeline schemes here including Leisure World, Maritime Gateway and Bargate Quarter, it is an exciting time of BTR opportunity for Southampton and its wider regional economy.
We look forward to seeing what the rest of the year will bring for BTR, as the sector starts to come to maturity.
For more information about investment in or development of BTR schemes, whether on the south coast or across the UK, get in touch.