The UK property market was exposed to significant disruption over the course of 2020. Rental demand has been tested in some urban areas while demand for homeworking and access to green space has increased. Mortgaged Buy-to-Let landlords continue to withdraw from the Private Rented Sector (-35,000 redemptions in the year to Nov-20) intensifying the undersupply of rental accommodation and creating opportunities for institutional capital. The past five years have seen strong growth in the number of renters aged over 35, many of whom view renting as a long-term option. The suburban Build to Rent (BtR) market is well placed to benefit from these trends. 

Where are we seeing suburban BtR come through?

Across the UK, we have identified c. 5,000 operational rental  homes on suburban schemes, around 10% of total operational  BtR. A further 8,600 homes are under construction or in planning

Much of the established suburban stock is located in the North West but new entrants to the sector will begin to shift the geographic distribution as additional regional markets are unlocked. Currently, c. 2.3 million privately renting households live in suburban locations with less than 1% of this provided by institutional landlords. Should suburban BtR grow its market share to 35% (805,000 households), we estimate that there is an opportunity for investors to allocate over £230bn into the sector.

Who is already looking at the sector?

A number of major players have recently shown interest in the suburban or single family model. L&G launched a new suburban BtR arm to its investment programme last November, and aims to deliver over 1,000 new BtR homes annually from 2024. Goldman Sachs also announced their intention to enter the sector, partnering up with Countryside. Together, they aim to deliver up to 1,000 BtR homes over the next three years. Packaged Living have launched their suburban BtR platform which aims to deliver 5,000 homes over the next five years while Urban and Civic are pursuing their own BtR strategy to accelerate development across their land bank.

How does suburban BtR differ from urban?

More than a quarter of tenants on suburban BtR schemes are families, a much greater proportion than on urban schemes. Families are attracted to suburban sites given they are nearly always in close proximity to schools and provide more green space, car parking and play areas for children. Nearly all suburban BtR schemes are composed of houses rather than apartments which are more appealing for families given the extra space afforded both inside and out. Suburban schemes continued to let well in 2020 as extra bedrooms for homeworking and access to green space rose quickly up a tenant’s list of priorities. 

According to the English Housing Survey, the number of private renters has grown fastest amongst the over 35s, over the past five years. This trend supports the Suburban model given there is a more diverse range of age groups on suburban schemes. Many of these households are likely to be life-time renters given childcare expenses will constrain their ability to raise a deposit to buy a home. Households with children also move less frequently to avoid disrupting their children’s education. That makes them attractive tenants for investors seeking stable, long-term income streams, suggesting the Suburban arm of BtR will become a key growth area for the sector.

UK Build to Rent Investment

2020 has proven to be a challenging year for nearly all real estate sectors. Despite significant headwinds, investment into BtR has performed remarkably well and this year has seen record levels of investment into the sector. 

Nearly £3.5 bn was deployed in 2020 with Q3 representing the largest single quarter of activity on record. Get Living agreed to fund Muse Development’s phase 2 of Lewisham Gateway while Axa acquired Dolphin Square in Westminster in a landmark deal. As reported in the press, these were the two largest funding and operational deals of the year respectively.

L&G were particularly active in 2020, agreeing to fund four new BtR developments in key regional cities including Birmingham, Glasgow and Sheffield. As the range and scale of opportunities on offer grows, the pool of investors looking to access the market is widening and we expect this trend to continue in 2021.

A number of high profile portfolio deals have already completed in Q1 2021 including QuadReal’s acquisition of six PRS assets from Realstar as well as Goldman Sachs’s purchase of Project Thistle rental portfolio from Gatehouse Bank.

UK Build to Rent Development

The UK’s BtR stock now includes 53,750 completed homes with a further 37,000 homes under construction. The future pipeline currently stands at 89,000 homes, including those in the pre-application stage. This brings the total size of the sector to 180,000 homes once built out.

Just under 42,000 homes have already gained detailed planning permission but have not yet commenced construction. Sites are continuing to move through the planning system and in Q4 alone, 15 schemes received detailed consent. 

The number of BtR homes starting construction in 2020 has increased 30% in London and 24% outside of the capital compared to 2019 highlighting sustained developer confidence.

The number of BtR completions this year has slowed and has fallen 18% year on year but remains in line with the three year average (2018-20). This hides regional variation with completions in the capital actually up 32% on the three year average. The number of BtR homes currently under construction has grown by 5% over the past 12 months and we expect the number of completions to continue to grow in 2021.