Build to rent sector grows in the UK

If there were a UK property developers list of companies investing in the build to let sector, it would be a much longer list than one published five years ago.

According to the British Property Federation (BPF), the number of completed build-to-rent projects increased by 23% from 43,598 in Q4 2019 to 53,750 in Q4 2020. The number of projects in the planning process stages and under construction were also up.

Speaking to the Buy Association website, BPF real estate policy director said “(t)he build-to-rent sector has shown its resilience throughout 2020, with investors continuing to drive the sector’s growth across every region of the UK.”

This has led many in the estate agency sector to question the future of letting within their businesses.

Lesley Roberts, partner at property management group Allsop, told The Negotiator, “(i)f letting agents take too larger a slice of the pie and squeeze operators, then using third-parties to source tenants will become unviable.”

She suggested that, to win commissions from build-to-renters to find tenants that they would have to embrace proptech, alter their pricing, and become more specialist. She says the role agents will most likely play as a “top up” service because of their ability to reach wider local tenant markets.

Certain agents have already begun to pivot successfully to the build to rent market like London-based Acorn Group.

Although the proportion of the tenant market currently occupied by build-to-rent firms is small in Britain, its presence does represent an increasing encroachment by large companies into the residential sector driven by investors seeking a return in an era of low interest rates and accelerating asset prices.

In the UK in March 2021, the Financial Times reported that the country’s largest mortgage lender, Lloyds Bank (which owns Scottish Widows, the Bank of Scotland, and the Halifax) was planning to purchase and rent out both existing and new housing stock in Britain by the end of the year. John Lewis announced a similar move last year as it seeks to plug weaknesses in its High Street store property portfolio.

The goal of the move was to lock in regular income through rental payments and capital appreciation over time via house price inflation. Secondary goals included the sale of insurance and rental deposit loans to tenants.

As usual, the UK is following the US in this respect. The build-to-rent market is already well established in America.

Brent Landry, SVP of Development, American Homes 4 Rent, told DS News that the COVID-19 pandemic caused the build-to-rent market to go into “turbo mode” and that, in Q3 2020, the number of single-family build-to-rent starts jumped 27%.

And big banks like JP Morgan Chase and Blackrock were also investing in the purchase of existing homes with the intention to rent them out to tenants – 36% of homes sold in the Phoenix area were to investors in Q1 2021, according to John Burns Real Estate Consulting as reported by The Times.

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