Property investors ready and willing to get involved in UK Build to Rent sector

The UK’s Build to Rent sector is in good shape to see considerable expansion as real estate investors and developers regard it as a significant opportunity going into 2017.

The Government has already backed the growth of the sector and there is strong support from those investing despite Brexit and economic uncertainty ahead of the official triggering of the process to leave the European Union which is due to take place by the end of March next year.

According to a new report from real estate services firm JLL investors and developers continue to recognise the opportunity in the UK’s Build to Rent market with investors looking for the security of residential rental income in both London and regional cities.

London remains the dominant market for the sector with the British Property Federation suggesting the number of purpose built rental units under construction or complete in the capital is now nearing more than 30,000.

The report points out that the bulk of London’s investment and development activity is in suburban locations, particularly alongside train or tube stations and city centre regeneration schemes in the commuter belt.

‘The greatest opportunity for the development of large scale Private Rented Communities is undoubtedly in the major metropolitan centres, as evidenced by the activity around London and Manchester in particular,’ said Simon Scott, JLL’s head of investment for UK Residential Capital Markets.

‘This stems from the deeper letting pools and the ability to deliver scale. Having said that, the opportunity to develop purpose built rental stock, in an age where renting is no longer seen as a tenure of last resort, should provide opportunity for viable delivery in other less mainstream locations,’ he added.

According to Adam Challis, JLL’s head of residential research, investors continue to seek an improved yield position, and this is more readily available beyond the markets and capital values of southern England.

The report points out that whether in London, or in a regional city, demand is building in the UK for this kind of property investment. Recent reports indicate there is more than £30 billion of pent-up demand in the sector, with some commentators suggesting that this number could be considerably higher.

‘The disconnect is the limited new supply coming to the market and the lack of existing product. As a result, we expect to see development and investment activity growing substantially over the short to medium term,’ said Scott.

‘New capital is competing effectively against incumbent UK residential investors, driving sharp pricing in markets such as London and Manchester. However, established investors retain an advantage as they are often more nimble and can target opportunities in secondary and tertiary cities. This has resulted in several large scale residential deals in new markets,’ he explained.

‘This investment into new markets is vital for further expansion of the asset class, providing broader choice and diversification for the next wave of investors in stabilised portfolios,” Scott says. “It will also demonstrate the big opportunity for new private sector investment to support regeneration activities in many UK communities,’ he added.

Scott pointed out that the real attraction of residential investment is the variety of product that can be created to suit all risk/reward appetites. ‘There is a structural shortage of residential accommodation in the market, and ever growing demand pressures, so the positives significantly outweigh any perceived risks,’ he said.

‘The Government is increasingly supportive for a significant increase in provision of supply, so our expectation is that the sector is likely to grow, with the pent-up demand for the right product offering significant opportunity for investors and developers,’ he added.

Challis added that policy support from politicians and planning authorities for Build to Rent is growing, and will aid development of new stock. ‘This, perhaps more than anything else, is the most important ingredient needed for the sector to flourish,’ he said.

‘It will innovate, it will expand, it will also make mistakes to learn from but unwavering support from policy can ensure that this new sector not only expands the quantity of homes build in the UK, it drives a step change in quality along the way,’ he concluded.