ack in 2012, when the Olympic Village was converted into rental accommodation, build-to-rent schemes in the UK were non-existent. The market has since grown and will soon account for an estimated fifth of the newbuild sector, as institutions seek new sources of income.
In the second quarter of this year alone, more than £550m was invested into UK build-to-rent schemes, according to Savills. There are now more than 62,000 completed. When you factor in those currently under construction, this figure rises to 200,000.
Dan Batterton, head of build-to-rent at Legal & General Investment Management (LGIM), said this number remains tiny compared with the overall rental market of nearly 4.5 million households, however.
He predicts a long march of consolidation, given the ongoing search for attractive sources of income amongst pension funds and the fifth of small landlords who are considering selling following tax changes.
LGIM has 6,500 flats either already built, in development or in the pipeline, with 2,000 currently occupied. A significant current brake on investment is a development risk, which will be removed as buildings are completed.
Batterton said: ‘UK investors are slower to invest into the sector because they really want the long-term stable income, but for that, you need the asset up and built. There are very few built assets for sale and most people who are building do not want to sell.
‘Ultimately, we want to own the long-term stable cashflow, but we have to develop it first. It’s seen as high risk because things can go wrong during that phase.’
Few UK institutions have the knowledge or the appetite to take on development risk, Batterton added. LGIM only buys land with planning consent and partners with well-known contractors such as Vistria.
That has left room for construction specialists such as Macquarie, which recently launched Goodstone Living, and has plans to invest more than £1bn in the build-to-rent sector in the UK.
The market is also specialising, with Lloyds using the insight gained through its near-£300bn mortgage book to become a significant buyer of completed homes.
ESG in focus
The residential market is largely seen as a defensive sector. But, in addition to the attractive income that accompanies build-to-rent projects, Batterton says the residential sector can also potentially achieve positive impact, which can be a draw for those investors looking to invest in line with ESG criteria.
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