Build-to-rent sector value predicted to double by 2028

By Tom Purcell | 2 Nov, 2023 | 3 minute read

Throughout the UK, hearing the bleak news about the UK's construction industry shrinking at its fastest pace since the Covid pandemic has been unavoidable.

But amid the gloomy outlook, there's a sector that's set to rapidly expand - bulid-to-rent.

The build-to-rent-sector's value is predicted to double over the next 5 years. 

Smart, modern, build-to-rent apartment properties in sunny London complex

The state of the UK construction industry

According to analysts, the slowdown in construction activity has been largely driven by interest rate rises, which have increased the cost of borrowing, hitting builders and dampening demand for housing.

In their workload activity index, the UK Construction Monitor, The Royal Institution of Chartered Surveyors (RICS) discovered a net balance of -10% of respondents reporting a decrease in activity this quarter - the worst result since the start of the pandemic in 2020.

The largest fall in workload activity was in private housebuilding where the net balance fell from -12% to -26%.

RICS said the drop in construction output is due to “the challenges currently being encountered by housebuilders in the face of slower sales and tougher pricing”.

Of the respondents to the RICS survey, only around one-third anticipate an increase in productivity over the next year.

But new reports have some positivity as one sector of the construction industry is predicted to have a significant expansion - build-to-rent...

Build-to-rent boom

In its simplest terms, build-to-rent is the building of homes for rent rather than for sale, and the latest predictions are that the UK's build-to-rent (BTR) sector could double in value by 2028, reaching £126bn over the next 5 years.

Research from property sales and lettings agency Knight Frank has found that the value of existing and planned BTR properties has doubled within the last four years—an increase from £35bn to £71bn as of 2023.

Regarding the growing investment in the BTR sector, Guy Stebbings, Head of Operation Build-to-Rent at Knight Frank, said, “The UK’s BTR sector is experiencing a remarkable surge in overall worth, with stock doubling in total value over the past four years. This trend reflects growing investment volumes based on rising demand for rental homes across the UK, underpinned by changing lifestyle preferences and housing market dynamics. 

“The urgent need for rental housing in the UK reinforces the ‘social good’ being provided by investors who are accelerating the delivery of much-needed stock. Our prediction that the sector’s total value will almost double again by 2028 is a testament to its ongoing strength and ability to meet the evolving needs of renters.”

Housebuilders integrating more Single Family Housing into plans

As traditional housebuilding is facing a reduction in activity, Single Family Housing (SFH) is becoming a vital element of rental living.

Whilst still a BTR property, there are differences between Single Family (SFH) and Multifamily BTRs.

Multifamily BTRs tend to be larger-scale developments—usually 200+ units in prime locations, suited towards younger professionals.

Single Family BTRs tend to be outside thriving locations and more suburban, whilst local employment and amenities are still convenient and accessible.

A recent Savills report identified that a record £1bn of investment in SFH has been attracted so far in 2023, and a further £25bn is expected to be committed over the next 5 to 10 years.

More and more housebuilders will integrate SFH into their plans, with a pipeline of nearly 2,000 homes that have been sold this year so far.

Where are the BTR investments being made?

Currently, the BTR opportunities for builds are strong in locations with large student populations, with Manchester, Edinburgh, Birmingham, Liverpool and Leeds all identified due to their student numbers but under-supply of purpose-built student accommodation and buy-to-let housing.

Whilst BTR developments have traditionally been more focused towards London and the north, the midlands and the south are seeing growing investment in BTR properties.

BTR sector growth could play a crucial role in the construction industry

There is set to be rapid growth in the UK's build-to-rent sector, with a projected doubling in size by 2028.

There is increasing interest from institutional investors and real estate firms in BTR, due to the long-term income potential, stable rental yields, and the appeal of purpose-built residential properties to diverse tenant demographics.

As a result of the cost-of-living crisis and issues surrounding buy-to-let properties with landlords looking to leave the market due to increasing rates, there is a growing demand for rental supply outstripping supply.

New build BTR properties are seen as investments that can see a positive return on investment in the right locations. The properties will be built with the latest energy-saving technologies and therefore should safeguard investors against any future EPC rating legislation changes.

The UK construction industry will play a crucial role in catering to the soaring demand for BTR properties. Construction management efficiency will be key and the BTR sector growth over the forthcoming 5 years should be seen as a positive opportunity for housebuilders and contractors to alleviate some of the difficulties faced by the construction industry.

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