Analysis: Where next for build to rent

There is a growing interest in the build to rent sector, but if it is to realise its potential it needs to deliver the scale and the products that the market wants, finds Josephine Smit.

Developer Essential Living's scheme in Brentford, west London, provides 221 PRS homes in a design by architect HTA that supports community building (PIC HTA)
Developer Essential Living's scheme in Brentford, west London, provides 221 PRS homes in a design by architect HTA that supports community building (PIC HTA)

This week developer British Land confirmed that it is in discussions to buy a private rented sector (PRS) housing operator, and has identified opportunities to generate around 5,000 homes – most of which will be for rent - across its portfolio of sites. The company is the latest to see potential in the UK’s nascent build to rent sector.

There are now around 25,000 build to rent units in the UK’s major cities, and many more are on the way. Across the UK, 130,000 build to rent homes are in the development pipeline, that number roughly split between London (67,000 units) and the rest of the country (64,000). But numbers still remain low compared to the US, where the established sector, called multi-family, comprises well over 14 million units across more than 60 metropolitan areas.

"Multi-family, PRS, whatever you want to call it, it is proving a topic that won’t go away as urbanisation continues. As it becomes more of a societal topic, more institutional investors will become involved," notes a report highlighting emerging trends in European real estate published by global property network the Urban Land Institute and consultant PwC this month. At a conference looking at the sector organised by property consultant CBRE this month, Helen Gray, head of build to rent consultancy at CBRE, put a figure on that investment interest. "There is around £32 billion of capital trying to get into the UK market, around three quarters of which is international," she said.

As the build to rent sector begins to establish itself in the UK, a number of opportunities and trends are emerging:

  • Location: While London has been a key destination for PRS housing, there is potential elsewhere. "A small city does not necessarily mean a small market," said Gray, also highlighting the scope for build to rent to extend beyond town and city centres to the suburbs
  • Scheme size: The size of schemes looks to be steadily growing. Completed schemes have, on average, 125 homes, those in construction 248 homes and those in planning 332, said Gray. Schemes currently in the pipeline could be perfectly placed, pointed out Colleen Pentland-Lally, director of capital markets at CBRE US. "When creating a scheme, those developing need to bear in mind the liquidity of the asset and their future exit plan. In the US 700-unit schemes are in this respect too big. There seems to be a sweet spot of 200-300 units."
  • Product: The PRS product is associated with young, single professionals, but CBRE’s Gray said there is potential for greater product differentiation as the market develops: "There’s a need for homes for families, seniors and for co-living. As only 10 per cent of what is being delivered is houses, there is scope to deliver more in future." Another aspect of the lack of diversity in PRS stock was this month highlighted by wheelchair housing group Abode Impact, which reported that wheelchair users are struggling to find accessible homes to rent.

But what build to rent really needs in order to realise its potential is the kind of significant scale that will attract big investment. "There is no standing stock to invest in," pointed out Pentland-Lally. Some US players could still wait and see how the UK market evolves, she continued, but there are others eyeing up the UK opportunity, and they may be open to working in partnership with UK local authorities or housing associations to deliver the kind of scale that could drive the sector's progress.


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