Build to rent projects worth billions of pounds are in the pipeline for London and other major city centres, according to a new report.
With one in six people renting homes, pension funds and other big institutional investors are looking for top returns on their cash and are attracted to build to rent because of the massive yields.
A study by global property firm Knight Frank reveals that the government scheme is over-subscribed and called for an extension.
The report tracks the performance of rental blocks in six major cities – London, Bristol, Birmingham, Leeds, Manchester, and Glasgow.
Knight Frank is handling build to rent block deals of more than £1 billion in these cities.
Looking at capital growth and discounts of properties ranked from economic to prime, the firm reckons private renting is still growing and that institutional investment is ready to pile in with cash to build more properties.
James Mannix, head of Residential Capital Markets, said: “Picking the correct location and the type of units built are two factors critical to ensuring the best returns; pricing of rents is also key. Branding should also be in the equation: similar to the hotel sector, we believe there is an opportunity for rental developers to create brands recognisable to a consumer audience.”
In 2013, the average rental growth in the cities tracked by Knight Frank was 2.9%, ranging from 0.4% in London to 5.3% in Manchester.
Leeds and Manchester had the highest average initial gross yields in the last three months of 2013, at 8.2%
The average yield across all six city markets was 6.6%.
The average discount fell from around 20% to 10%, reflecting increased activity in the regions
Gráinne Gilmore, head of UK Residential Research and the report’s author, said: “The rental revolution is here. The dynamics in the housing market in the UK mean that the private rented sector is set to continue growing in the years to come, boosted not only by the difficulties many face in climbing onto the housing ladder, but also the need for flexible tenure among workers who are increasingly concentrated in the key cities around the UK.”