The Build to Rent (BtR) sector continues to weather the economic challenges facing the UK with the latest year-on-year growth figures from the British Property Federation (BPF) remaining positive at 9%.
A healthy pipeline of activity is clear from the expansion of BtR projects, either in plan or under construction, at nearly half of all local authorities.
Nearly 50,000 units were already being built in the first quarter of 2023, BPF reports.
BtR is steadily proving its worth as a purpose-built solution to housing need as confidence in the wider private rented sector continues to be tested by tax and legislative reform and investors, including institutional lenders, look for new opportunities.
In the Portsmouth and Hampshire region, we see a series of notable BtR projects:
- Specialist long-term property investor and developer Nicolas James Group is planning 217 BtR homes in its proposals for the former St John’s College site in the centre of Southsea.
- Also in Southsea, Portsmouth City Council’s regeneration vehicle Ravelin Housing is about to bring 17 apartments to market in a rejuvenation of the old Brewery House bottling plant. Four of these are affordable homes for key workers.
- And along the M27 at North Whiteley near Fareham, suburban homes specialist Hearthstone Investments is taking forward 70 new BtR units as part of a bigger masterplan community development.
These three schemes reflect growing interest in BtR developments nationally as part of the private rented sector and the search for innovative solutions to meet housing need and alleviate pressure on renters.
So what is BtR and why is it attracting attention?
Under BtR, a developer will recoup costs from recurring, long-term predictable rental income rather than an immediate property sale. This leaves the development process, and the return on investment, less susceptible to market fluctuation.
The approach is attractive to investors, including institutional lenders such as pension funds, because of the likelihood of a safe, stable income stream.
From the tenant’s point of view, a BtR property is likely to offer a modern and purpose-built or newly refurbished home that is professionally managed and maintained and somewhere they can live for a long time.
In some cases, the property will come with on-site amenities such as a concierge service or gym and there may be shared spaces, such as rooftop terraces, for neighbours to mix, get to know each other and hold events such as barbecues or yoga sessions.
BtR is not the same as Buy-to-Let. With the latter, private owners and landlords will tend to own a small number of properties and not necessarily bring purpose-built units or conversions onto the market.
As shown by the Brewery House and St John’s College schemes, the BtR approach offers the ability to convert disused buildings, including former commercial premises, into much-needed homes for local people.
Local authorities, including in both these cases, Portsmouth City Council, see innovative BtR schemes as ways of addressing housing demand while providing a welcome, complementary stimulus for local economic growth.
According to Savills, the second quarter of 2023 saw a rise in capital invested into the BtR market in the UK, putting its worth at a record £1.26bn. Since the start of the year, around 8,300 additional BtR homes have been funded nationally.
The rise in BtR over the past decade or so has come as the prospects for Buy-to-Let profitability have reduced.
That’s because, in many cases, individual Buy-to-Let landlords have been struggling with tax and legislative changes and, more recently, the prospect of rental income not keeping up with any mortgage they pay on the property due to higher interest rates.
Savills’ 2023 analysis of BtR investment is shared in large part by BPF which last year put the overall number of BtR homes at 237,362 across the UK.
A BPF survey of London found that six out of ten BtR tenants are aged between 25 and 34, a proportion 15% higher than in the wider private rented sector.
At the same time, the Homeowners Alliance said BtR can help tenants in the private rented sector resolve issues around short-term lease arrangements, unfair rent increases and delays in landlords carrying out property repairs.
The Alliance said BtR can offer tenancies that are three years or longer, provide certainty on any planned rent rises and enable more efficient property management.
While BtR still makes up only a small percentage of the overall private rented sector, we can expect it to grow in importance.
As well as the schemes we see here in Portsmouth, South Hampshire and regions elsewhere, more than 10,000 BtR homes have already been completed at the huge Queen Elizabeth Olympic Park site in Stratford, East London, an indication of market confidence in the Capital.
We believe BtR will play a growing role in the housing mix nationally, similar perhaps to how student accommodation has evolved into a multi-billion-pound market in recent years.
As BtR operators seek to differentiate themselves from competitors, success will hinge on efficient property management, ensuring tenants enjoy excellent levels of service and investors achieve reliable and healthy returns on investment.
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