The thriving Build to Rent (BTR) sector in the UK needs to cater to mid-market and regional needs to truly tackle the housing crisis.
A new report by property consultant Lambert Smith Hampton (LSH) warns that the next phase of growth hinges on offering more affordable options and schemes tailored to regional demands.
Despite rapid expansion in the past decade, BTR still constitutes only 2% of the private rented stock, with immense potential for further growth. The sector boasts 96,000 completed units, 67,000 under construction, and 114,000 in the pipeline. Projections suggest a doubling in size within the next five years.
Beyond its initial focus on young urban professionals, BTR now encompasses a wider range of solutions, including mid-market schemes, suburban properties, and homes for families and older renters. This "BTR 2.0" wave will prioritize building these highly sought-after housing options.
Another crucial shift is BTR's geographical expansion. While major cities like Birmingham, Leeds, Edinburgh, and Glasgow see vibrant activity, smaller towns and cities remain largely untapped. LSH identifies promising locations like Portsmouth, Plymouth, and Norwich with significant potential.
The report emphasizes adapting amenity levels for regional success. High-end features like gyms and co-working spaces might not translate well to smaller markets. Operators must find alternatives to maintain service quality and stand out from traditional private rented sector offerings.
BTR investment hit a record £4.5bn (€5.3 bn) in 2023, driven by the emerging single-family rental (SFR) segment, which accounted for 42% of the total. Housebuilders selling homes in bulk to investors due to sluggish individual sales fueled this growth.
This trend is expected to continue, pushing investment volumes even higher. LSH anticipates a record-breaking year in 2024, with volumes exceeding £6bn (€7bn) and capturing 15% of the UK commercial real estate market. This share is expected to hold steady as existing stock matures and changes hands.
Simon Wilson, head of LSH Living & Capital Markets, commented: ‘The BTR sector continues to offer huge growth potential. To sustain this growth, developers and operators will need to create affordable solutions suited to locations that are currently underserved by BTR, which may mean adjusting unit mixes or scaling back on-site amenities to improve viability in the face of continuing build cost challenges.”’
