Build to rent or BTR developments, funded by institutional investors such as insurance companies and pension funds, have been growing in numbers dramatically in recent years.
And this sector of the residential property market will become a force to be reckoned with in the future and a challenge to the small-scale buy-to-let landlord.
But so far this segment of the market is quite small – it occupies less than 2% of the private rented sector.
Out of approximately 24 million households, over one fifth (20%) are now in private rented accommodation and this market is growing – demand still outstrips supply, which means, despite the Covid effect, there is considerable upward pressure on rents.
The potential size of the market and the relative security of asset values and rental cash-flow returns makes the industry an attractive proposition for institutional investors for the long-term.
To take one example, Legal and General (L&G), the insurance company, is becoming a major investor in build-to-rent.
L&G’s existing presence in the build-to-rent sector has over 5,000 rental homes in operation or currently under development across the UK’s major towns and cities.
1k homes a year
Their latest announcement says it plans to build 1,000 family rental homes per year as part of its recently launched “suburban build to rent business”.
This will be focused on family rental communities, by developing family homes in areas connected to schools, transport infrastructure and key amenities.
L&G says it has identified a gap in the market, a need for single family homes which are professionally managed, offering a high level of flexibility and security of tenure largely unavailable in urban centres. It is basing its planning assumptions on a forecast growth which will result in a UK residential market of well over £200bn.
L&G’s investment will go into a mix of houses and low-density apartments, with facilities meeting today’s needs.
Some will incorporate home offices with more extensive outdoor space designed to meet the changing needs of home renters, changing patterns of work and the increasing desire for a better home-life balance post the pandemic.
Built into the planning is the need for increasing environmental efficiency, both in the build requirements, home running and management. L&G says it has a sustainability commitment throughout its business and plans are to make its build-to-rent operations carbon net-zero by 2030.
David Reid who is joining managing director on the build-to-rent management team (pictured) says they will collaborate with housebuilders to develop some large-scale sites, as well as pursuing a direct delivery programme.
He adds: “As we gear up towards the acquisition of our first sites, our major focus has been to put together a stellar team to match and support our growth ambitions. With working practices and demands changing rapidly in light of the pandemic, it’s more important than ever that we deliver high-quality homes to meet societal demand.”