Knight Frank has announced that the UK’s Build to Rent (BTR) sector could almost double in total value over the next five years, reaching £126bn by 2028.
Soaring demand for rental homes across the country is leading developers to deliver more stock, which is pushing up the sector’s overall value, the firm said.
Knight Frank revealed that the total value of existing and pipeline BTR stock has already doubled over a four-year period; the firm valued the sector to be worth £35bn in 2019, increasing to £71bn in 2023.
There are currently 90,000 completed BTR homes across the UK in schemes of at least 75 units. An additional 67,000 units are under construction and 74,000 have full planning permission, bringing the total volume to over 230,000 homes.
In total, £698m transacted in Q3 2023, taking year-to-date investment to £2.7bn.
Guy Stebbings, head of operational Build to Rent at Knight Frank, said: “The UK’s BTR sector is experiencing a remarkable surge in overall worth, with stock doubling in total value over the past four years. This trend reflects growing investment volumes based on rising demand for rental homes across the UK, underpinned by changing lifestyle preferences and housing market dynamics. The urgent need for rental housing in the UK reinforces the ‘social good’ being provided by investors who are accelerating delivery of much needed stock.
“Our prediction that the sector’s total value will almost double again by 2028, testament to its ongoing strength and ability to meet the evolving needs of renters.”
Lizzie Breckner, head of Build to Rent research at Knight Frank, commented: “The burgeoning BTR sector reflects a robust investment landscape and a growing appetite for more choice and flexibility in rental housing. Looking ahead, we anticipate strong capital inflows, further fuelling the sector’s expansion.”
In 2023, investment volumes slowed following a record previous year, Knight Frank said.
However, while this year’s Q3 was 57% below the bumper £1.6bn recorded in Q3 last year, activity is ahead of the historic average for the first three quarters of 2023.
Average investment volumes for the first three quarters have averaged £2.4bn since 2016, compared with £2.7bn this year.
Volumes are down 22% on the first three quarters of 2022, which is driven by a 14% drop in both deal numbers and lower average deal values. Deal structures are shifting to account for challenges in the debt market.
Forward commits account for 21% of deals so far this year, compared to just 5% for 2020-2022. This is largely down to an increasing number of housebuilders entering the sector and delivering both BTR and single-family housing.
Guy Stebbings added: “While investment volumes for 2023 have moderated after a record-breaking year in 2022, strong rental demand continues to drive capital into the sector.”
Looking ahead, Knight Frank’s residential investment team is tracking £1.6bn of transactions which are expected to trade by the end of 2023 or beginning of 2024.
Breckner concluded: “Strong rental demand continues to encourage capital into the sector. Suburban single-family homes for rent are of particular interest to investors. This subsector now accounts for 9% of the wider BTR market, and has a pipeline of more than 20,000 homes.”
