Build-to-Rent Sector is Expanding to Fill Supply-Demand Imbalance
Savills’ latest Build to Rent Market Update has revealed that the UK sector hit record growth in the third quarter of 2023.
The amount of build-to-rent (BTR) developments has hit a record high, and the proportion of overall real estate investment taken up by BTR has also reached a new record. These figures suggest a growing interest from property investors learning what to invest in right now in 2023 and highlight the increasing attractiveness of property as a lucrative investment strategy.
BTR refers to residential properties, often large-scale apartment complexes, designed and constructed specifically for the purpose of renting out.
This type of development is gaining more attention as the need for private rental properties is far outstripping supply in the UK at the moment, making tenant demand extremely high and pushing rents up further.
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UK’s Build to Rent Sector is Rapidly Growing
According to Savills’ report, the amount of BTR homes currently under construction has hit a record high of 59,043.
The number of finished BTR homes across the country now stands at 92,140, representing an 11% YoY rise. There’s also plenty more on the way, with 112,111 homes in the planning pipeline or pre-application stage.
Despite activity being restrained due to economic headwinds across all real estate sectors, BTR has been affected less than other areas, giving it a higher share of overall investment. Build to Rent now takes up a ‘record proportion of total investment’, now sitting at 10%. This is up from 6.4% in Q1 2022.
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What’s Behind the Rise of Build to Rent Developments?
According to Savills’ market report, rents have grown annually by 10.1% in September, and this is the latest increase in a 20-month run of double-digit rental growth in the UK. The UK private rental sector remains in a period of low supply and high demand, and this imbalance continues to push rents up rapidly.
These conditions keep Property investment strategies such as build-to-rent and purpose-built buy-to-let student properties attractive to investors. Demand for rental properties remains sky-high, leading investors away from commercial developments and drawing them towards residential investments.
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What Does the Future of Build to Rent Look Like?
The build-to-rent property sector looks set to experience significant growth moving forward, with its total value predicted to nearly double over the next five years, hitting £126 billion by 2028, according to research from Knight Frank.
Investing in BTR can offer a significant ROI due to exceedingly high demand and rising rents.
This is especially true when targeting areas of the UK with good potential for capital value appreciation and high average rental yields, such as North West cities like Liverpool and Manchester.
While developers initially focused BTR efforts on London, there has been a trend towards targeting other major UK cities such as Manchester and Liverpool, and this shift seems set to continue as the sector gains popularity at a promising rate. Learn more about exactly how buy-to-let investment works and what you need to be aware of with the RWinvest guide.
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