The future looks bright for build-to-rent investors and tenants. Even during a downturn triggered by the Covid-19 pandemic, build-to-rent fared better than other parts of the rental sector, and it looks to go from strength to strength.
Where it all began
Build-to-rent is not unusual in other parts of the world, such as the USA and Europe, but it wasn’t until 2012 that the UK saw its first build-to-rent development. It was part of the 2012 Olympic Games legacy that the East Village on the Olympic Park, originally accommodation for the athletes, would be turned into homes. This was the first step in build-to-rent, and we haven’t looked back since.
What’s happening now
If you want to see what’s happening in the build-to-rent market now, the statistics and changes happening in the sector paint a clear picture.
Between 2017 and 2018, the completion for build-to-rent properties reaching the market grew by 1%. Compare that to 2018-19, and completions jumped by 54% annually.
Although build-to-rent saw an impact from Covid resulting in a decline of 20% in 2020, the number of completed homes is impressive, having increased by 23% from the fourth quarter of 2019 to the fourth quarter of 2020, with an additional 22% more projects in the planning process and 5% more under construction, according to the British Property Federation.
Driving this trend are people’s changing perceptions of renting. For those not wanting or unable to take on the financial commitment of a mortgage, renting is more favourable, and this shift is not going unnoticed by investors. John Lewis announced plans to construct 10,000 homes to let in their car parks and warehouse sites, and other big names such as Lloyds and Aviva are seeing opportunities to invest. This will continue to drive the growth of build to rent as more properties and choices become available.
Where is the BTR market going?
In the first quarter of 2021, plans for nearly 7,000 new build-to-rent homes received planning permission, the highest of any previous quarter and it is forecasted that by 2025, more than £75 billion will have been invested in the build to rent sector. The sector is preparing for a substantial increase in demand driven by changes coming over the horizon.
City locations such as London, Manchester and Glasgow will remain popular, but developments are spreading to more suburban areas; residents here will be looking for something different that appeals to families, widening the appeal of build-to-rent. In these locations, houses rather than apartments will be built, and different amenities such as schools and outdoor play areas will be desirable.
Increased demand for rental properties from the over-65s, who are also attracted by the prospect of developments focused on community and greater amenities, is another growing opportunity in build-to-rent developments. Still, it is also argued that to have a truly deep impact on the rental market and continued growth, properties for lower-income families will also have to be built.
A resilience to challenging times and the desire to diversify to meet the demands of different kinds of residents means that it’s “onwards and upwards” for the build-to-rent sector, and many investors will be keeping a watchful eye on what happens next.
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