2023-07-27-莱坊-Build_to_Rent_Market_Update_Q2_2023_3页_900kb

UK Build to Rent (BTR) Market Update – Q2 2023

Core Content

This report provides a quarterly analysis of the UK Build to Rent (BTR) market, highlighting investment trends, regional activity, macroeconomic influences, and rental growth. Knight Frank's research indicates that despite economic uncertainty and high debt costs, the BTR sector has remained resilient and attractive to investors.

Investment Trends

• Total Investment in Q2 2023: £959,800 million.
• Year-to-Date Investment (H1 2023): Just over £2 billion, a 7% increase compared to the same period in 2022.
• Deal Volume: 8% lower year-on-year, but average deal value rose 5% to nearly £70 million.
• Lot Size Impact: A larger lot size contributed to a 13% increase in investment volumes compared to Q2 2022.
• Funding Structures: 81% of investment was via forward funding or forward commitment structures, with 19% allocated to stabilised operational assets.
• SFH Growth: Single Family Housing (SFH) accounted for 30% of Q2 investment, with H1 total SFH investment reaching £733,600 million – nearly double that of full year 2022.
• Future Deals: At least £1 billion in deals is under offer or in solicitors' hands, expected to trade in H2.

Regional Activity

• Regional Dominance: Deals outside of London accounted for 90% of total investment in H1 2023, a sharp reversal from the 41% share in 2020–2022.
• Leading Markets: Birmingham, Belfast, and Leeds have been the main drivers of regional activity.
• London Activity: Q2 saw 90% of deals by value in regional markets, with reduced deal volumes in London due to fewer opportunities being marketed and tighter yields.

Macroeconomic Context

• Inflation: UK inflation eased to 7.9% in June 2023, below the expected 8.2% and down from 8.7% in May.
• Interest Rates: The Bank of England is expected to raise the base rate in August, potentially peaking at 5.5–6% by the end of 2023, with cuts unlikely until late 2024.
• Yields: BTR net initial yields have softened by between 25bps and 50bps since Q3 2022.
• Pricing Stability: Rental prices have held firm, with strong rental growth offsetting yield reductions.

Rental Growth and Affordability

• Rental Growth: The Knight Frank BTR Rental Index shows asking rents for new leases rose 10.9% in the year to June 2023.
• Supply Constraints: Rental supply has plateaued, with listings volumes in Q2 2023 similar to the previous year, but 52% lower than the 2017–19 average.
• Occupancy and Lease Up: BTR schemes have seen strong occupancy and lease-up performance due to supply shortages and rising demand.
• Affordability Pressures: Rental growth is expected to moderate as rents have outpaced incomes over the last 18 months.
• Forecast: Rental growth is projected to be 4.0% in 2023, with a gradual decline to 3.5% in 2025 and 3.0% in 2026. Over the next five years, cumulative rental growth is expected to be 18.2%.

Key Stakeholders

• Oliver Knight: Head of Res Dev Research
• Nick Pleydell-Bouverie: Head of Residential Investment Transactions
• Guy Stebbings: Head of Operational BTR
• Lisa Attenborough: Head of Debt Advisory
• Lizzie Breckner: Head of BTR Research
• Jonny Stevenson: Head of BTR Funding
• David Shapland: Head of BTR Valuations
• Emma Winning: Head of Equity Advisory

Conclusion

The UK BTR market remains robust despite macroeconomic headwinds, with strong investment volumes, notable growth in SFH deals, and continued rental growth driven by supply shortages. While affordability pressures may moderate rental inflation, the sector is expected to maintain above-trend growth in the short term, supported by a strong labour market and high immigration. Regional markets, particularly Birmingham, Belfast, and Leeds, are leading the investment activity, with London lagging due to tighter yields and fewer opportunities.