Investment in the fast-growing Build to Rent (BTR) market bounced back significantly in Q3 2020, according to CBRE’s latest Marketview report.
Following subdued activity in Q2, as a direct result of the coronavirus pandemic, a total of £1.43 billion of investment was recorded in the last quarter.
CBRE has tracked investment into UK BTR, known as multifamily housing in more mature markets such as the US and Germany, since the sector started to properly emerge in 2015. The latest figures mean the BTR sector is now worth nearly £14 billion.
The latest findings showed that, unusually for the UK market, a large proportion of total investment in Q3 was accounted for by an existing building, as AXA finalised its purchase of Dolphin Square in London.
Other major transactions concluded in London in Q3 included two forward-funding deals, with Long Harbour agreeing the funding of 315 BTR homes at Berkeley Square’s Berol Yard development in Tottenham Hale, for £156 million.
Meanwhile, well-known BTR operator Get Living boosted its London pipeline with the funding of 650 apartments at Lewisham Gateway.
Outside of London, investments in Q3 totalled £299 million, equating to approximately 1,700 new BTR homes, with the largest of these transactions being the £120 million forward-funding at New Victoria in Manchester by Pension Insurance Corporation (PIC).
In Q3, news also emerged of investors raising further funds for expansion, with Get Living securing £410 million from Allianz Real Estate and Local Pensions Partnership, while Swedish private equity firm, EQT, partnered with Sigma Capital to enter the UK market and build a £1 billion BTR portfolio in London.
Looking to the future, there is currently £1.4 billion of investment in the pipeline. If this all transacts, it would bring total BTR investment in 2020 to approximately £4 billion, nearly 50% higher than 2019 despite the challenges posed by Covid.
Scott Cabot, associate director of research at CBRE, said: “The multifamily (BTR) sector continues to demonstrate its relative resilience, which has boosted investor appetite and is attracting new entrants, including the retailer John Lewis. According to CBRE data, multifamily rent collection levels have remained high, averaging 96% in August. Occupancy levels fell during lockdown, but also remain higher than most other sectors, at 86% in August.”
He added: “We continue to forecast that the residential sector will outperform over our five-year forecast horizon. We currently expect residential total returns to average 6.5% per annum to 2025. This compares with 2.7% for retail, 3.7% for offices and 6.2% for industrial.”
Adam Burr, head of CBRE’s residential valuation team in Manchester, also commented: “The regional multifamily and single family housing markets have continued to show their resilience in the last quarter, despite some localised restrictions across the regions prior to the introduction of the new three-tier system.”
He added: “We have specifically seen positive performance from a ‘let up’ perspective for a number of schemes which have become operational across the key regional markets including Manchester, Liverpool, Sheffield and Leeds, with take up rates broadly trending in line with absorption in a pre-Covid environment.”
Over the last few months, he continued, there has been a number of high-profile deals across the key regional centres, further underpinning the robust nature of the market.
“And with the emergence of some new investors, some specifically targeting the regional markets, there appears to be a very optimistic outlook in the regional multifamily/single family space,” Burr said.
Prime net yields continue to range from 3.25% to 4.25%, while sentiment remains broadly positive moving into Q4.
You can read the full report here.
BTR grows in Buckinghamshire
To further highlight the sector’s recovery, developer Inland Homes has announced two sales valued at £52.8 million to two BTR funds at its Centre Square and Buckingham House developments in High Wycombe, ‘demonstrating the attractiveness of the brownfield regeneration specialists’ assets within this growing market’.
Kooky, a new boutique BTR brand, has purchased Inland Homes’ Buckingham House development in High Wycombe, which consists of 85 units purchased at £21.3 million. This adds to the firm’s growing portfolio of branded BTR properties in key locations surrounding London.
The second development sold by Inland Homes was 123 units for £31.5 million at its Centre Square development in High Wycombe.
Inland says it prides itself on the flexibility of its business model to seize new market opportunities and argues that its move into the rapidly growing BTR market evidences this.
The company committed to making a move into this space in 2019 and subsequently stated it was a priority for 2020. Inland Homes insists that, unlike others, it offers both the land and build capability, making the firm an attractive proposition to prospective investors.
“We have a substantial number of sites which are suitable for rental housing and as we reported in last year’s accounts, securing ‘Build to Rent’ opportunities has been a priority for the Group this year,” Stephen Wicks, chief executive at Inland Homes, said.
“We are delighted therefore to announce these latest land sales at Centre Square and Buckingham House to two highly-respected operators in this market. As these deals evidence, and following the completion of land sales at Wilton Park and Cheshunt Lakeside, there is sustained demand from investors, housing associations and other developers for our high-quality land assets and our build expertise.”
He added: “This is particularly pleasing and a testament to the Group when considered against the ongoing global Covid-19 economic uncertainty."
Nicholas Belkin, head of acquisitions at Kooky, commented on the deal: “Taking up the opportunity to work with Inland Homes proved to be a fluid acquisition from agreeing the deal through to exchange. The team at Inland were always on hand during the legal process. We are excited about our first Kooky rental building in High Wycombe and further deals to come with Inland Homes.”
Although BTR still only accounts for a small part of the marketplace – around 2-3% - it has been the fastest-growing part of the rental sector since 2016, and remains a low-risk option for institutional investors.
The latest British Property Federation BTR map of the UK shows that there are now 167,853 BTR homes in the UK, of which 47,754 are complete, 34,132 are under construction and 80,730 are in planning. Outside London, there are 90,285 homes and inside London there are 77,568 properties.