Robust levels of BTR investment continue despite challenges
Investment into the UK’s Build to Rent market reached £1.7 billion in the first half of 2022.
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Institutional investment into the UK Build to Rent (BTR) market totalled £1.7 billion in the first half of 2022, following a record breaking 2021 where £4.3 billion was invested. In the two years since the onset of Covid-19, the amount of investment committed to UK BTR has totalled just shy of £9 billion.
For the second quarter of 2022, £762 million was committed. While this represents a slight drop in investment compared with the same quarter of 2021, it is 31% above the long-term quarterly average. Overall H1 investment was 25% higher than the long-term average.
The numbers, which track both on and off market deals and exclude land sales and refinancing, point to the ongoing resilience and investment appeal of the sector, even in the face of continued build cost inflation and a more challenging economic backdrop.
Average deal size for Q2 was over £75 million, up from an average of £64 million per transaction in Q1. Increasing lot sizes reflect an ongoing search for scale among new and existing entrants to the market.
Key deals to have transacted in the second quarter include Grainger’s acquisition of Redcliffe Quarter in Bristol for £128 million, Get Living forward fund of Maker’s Yard in Birmingham for £136 million and Heimstaden’s £125 million forward sale in Edinburgh, the latter showing the continuing flow of international capital into the UK market.
Positive momentum is expected to continue, with a further £3.1 billion worth of deals that are likely to complete by the end of the year identified within our investment tracker.
Rental market update
Rental growth across the UK has continued to pick-up through 2022 with numerous indicators suggesting rental growth is at a multi-year high across the UK. The official ONS index reports annual growth at levels last seen in 2017, while both the main portals report that rents rose at their fastest pace in more than a decade last year.
London is performing exceptionally well, reflected in our own data pointing to 20%+ rental growth in prime markets.
Strong rental performance across the UK is also being driven by an ever-deepening mismatch between supply and demand. As has been the case since early 2020, the RICS lettings survey points to a significant gap between new tenant enquiries and landlord instructions, an imbalance which is likely to keep upward pressure on rents in the short to medium term.
At the same time, short-term inflationary pressures will, inevitably, act as a moderating force on larger rises as household finances are stretched.
Sales and rental forecasts
Our current sales and rental forecasts can be viewed here.