Investment in UK Build to Rent set for a sharp rebound, report finds

13 July 2020 | Investment

Multifamily (Build to Rent) housing is set to be the UK’s most resilient real estate sector, according to a report from global real estate firm CBRE.

Although investment this year is likely to be lower than in 2019, as a reflection of the challenges posed by Covid-19, it will return to growth in 2021, and outperform other sectors over the next five years, CBRE said.

CBRE has tracked investment into UK Build to Rent (BTR) – known as multifamily housing in more mature markets such as the USA, Germany and other parts of Europe – since the sector emerged in 2015.

After a strong start to the year, with over £1 billion of investment in Q1, BTR – like all real estate sectors – has witnessed a significant downturn in investment, as the government lockdown effectively halted activity. Consequently, there were only two transactions concluded in Q2, totalling £83 million.

Even though investment stalled in the last quarter, as the UK battled Covid-19, plans for schemes still moved forward. Court Collaboration, for example, announced it will bring forward a £125 million BTR scheme in Deritend, Birmingham, while Taylor Grange also lodged plans in Birmingham to provide 440 rental apartments.

In London, meanwhile, Amro Real Estate’s revised plans for a BTR scheme in Ealing were approved by the council’s first virtual committee and will deliver 278 BTR homes.

Moving forward, there is a substantial investment pipeline in this sector, with just over £1.4 billion worth of deals currently under offer – broadly equivalent to the investment pipeline at the end of 2019, which then translated into £1 billion of investment in Q1 2020.

Scott Cabot, associate director of research at CBRE, said: “It’s little surprise that there was a sharp downturn in investment in Q2, as the lockdown halted activity. But this period has also highlighted the resilience of the multifamily sector. Rent collection rates have remained high, and historically rents have declined less and recovered quicker during downturns, giving investors some confidence to proceed.” 

He added: “With £1.4 billion of deals currently under offer, we anticipate a rebound in multifamily investment in the second half of 2020, and a return to growth in 2021.”

“While we may see modest rent falls in 2020, we expect the sector to return to growth in 2021 and outperform other sectors. We are currently forecasting total returns of 5% per annum for multifamily over the next five years. This compares with 3% and 2% per annum, for offices and retail respectively.”

Prime net yields continue to range from 3.25% to 4.25%, the firm said.

You can read the full report here.

In other BTR news, investment manager ARA Venn announced that, notwithstanding necessary coronavirus lockdown measures, it completed £250 million of new lending through the £3.5 billion Private Rented Sector Housing Guarantee Scheme that it manages for the UK government, in the second quarter of 2020. This takes total lending under the programme to over £1.25 billion and involved successful sales of its 2026, 2029 and 2034 bonds in order to make the loans.

The loans included an acquisition finance facility provided to German real estate investor ECE in respect of its £400 million-plus acquisition of 2,063 units in the city centres of Birmingham, Leeds and Manchester.

The portfolio was developed by Dandara, and ECE will be responsible for the long-term management and leasing of the apartment buildings in partnership with Dandara.

Richard Green, partner at ARA Venn, said: “Our scheme was conceived to provide much-needed debt liquidity to the nascent UK PRS market, and we are glad to have lent over £1.25 billion to date, with a large pipeline yet to be funded. Our ability to access capital markets with our government guaranteed bonds through the coronavirus pandemic and related lockdown measures is testament to the resilience of the scheme and we are delighted to see investors’ continued support.  We are grateful to all stakeholders, including our colleagues at Homes England and MHCLG for their support in achieving these positive outcomes.” 

Housing Minister Christopher Pincher, the Conservative MP for Tamworth, added: “The £3.5 billion Private Rented Sector Guarantee Scheme plays a vital role in delivering thousands of good-quality homes, providing a better deal for private renters across the country. This important milestone reached today will ensure we are able to continue to support the Build to Rent sector through the pandemic and beyond.”

Alexander Otto, chief executive of ECE, commented: “Our entry into the British BTR market is a strategic investment into a growth segment in residential markets and a starting point for ECE to realise further investments in this promising sector in the United Kingdom and other European countries.”

“The financing of ARA Venn was very supportive at getting successfully started with the acquisition of the Dandara portfolio, and we are very happy with the result and the good cooperation with ARA Venn.”

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