Thu. Jan 27th, 2022

Banks, real estate funds and other institutional investors poured a record amount of cash into the UK’s rental property market last year, fueling a boom that is likely to continue into 2022 due to a chronic shortage of homes in the country.

Investors plowed in £ 4.1 billion into the UK’s fast-growing ‘build-to-rent’ sector last year, more than half of which was spent in a good fourth quarter, according to CBRE.

That was about £ 500 million higher than 2020’s previous record. Nearly £ 2bn worth of transactions are already on the train for this year and a further £ 2.5bn is being marketed, according to CBRE.

Build-to-rent developments are typically purpose-built apartment blocks operated by specialist corporate landlords. Well established in the US and mainland Europe, the model has gained ground over the past decade in a UK market that has historically been dominated by a patchwork quilt of smaller buy-to-let landlords.

The UK’s emerging market has attracted interest of American investors, including Goldman Sachs and the real estate group Greystar, the Australian investment bank Macquarie, the German real estate investor Patrizia and the British financial services institution Legal & General.

More recently, the sector has less experienced local players, including Lloyds Banking Group and mall chain John Lewis.

Lloyds aims to expand aggressively, with internal documents showing an intention to build a portfolio of 50,000 rental homes by 2030, leading to the bank’s FTSE 250 company Grainger, one of the UK’s oldest and largest landlords 9,000 properties will make it jump.

The new entrants are looking for a share of a market that analysts predict will grow significantly over the next few years.

Even in the US, investors are still flocking to purpose-built rental developments. This week, the Wall Street Journal reported that entities affiliated with WeWork co-founder Adam Neumann have built up a majority stake in thousands of U.S. properties worth more than $ 1 billion.

Build-to-rent apartment operators support the benefits of a more professional rental experience in the UK, where complaints about unscrupulous independent landlords are commonplace.

Bar graph of estimated number of units (000) showing build-to-rent development in the UK

But in more established markets, build-to-rent developers have been criticized for delivering expensive apartments that do not address the housing-affordability crisis. In the last six months, there has been loud opposition to corporate landlords in Spain and Germany, who are accused of rushing rent.

In the UK, the expansion of the model is driven by investors hunting for steady returns and by the “chronic shortage of good quality housing in the UK”, according to Jason Hardman, executive director at CBRE.

During the pandemic, investment accelerated as real estate investors bet that purpose-built apartments would yield more reliable returns than shops, offices or an unpredictable stock market.

“There was a change of guard in terms of what is considered a safe asset class. Beds and canopies [warehouses] were definitely last year’s themes for investors – some have changed direction and place investment mainly in those asset classes, ”Hardman said.

Richard Valentine-Selsey, research analyst at real estate company Savills, said the sector still has room to grow significantly. “2021 was a landmark year for new entrants. About a third of all transactions were entered into by new entrants, a sign that we are still very early in the development of this sector. ”

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