Due to the effects of the Coronavirus pandemic, changes in lifestyle, finances and personal priorities have had a real impact on demand across the UK’s property market.
The need for Private Rented homes continues to grow year-on-year and accounts for a growing proportion of the UK housing stock. According to the ONS, the number of rented properties has doubled between 2007 and 2017 (from 2.8m to 4.5m households) and this growth is continuing. There are two main reasons for this.
House price inflation has made it increasingly difficult for first-time buyers to get onto the property ladder, with the average house price in the UK now £269k, a growth of over 8% in the last 12 months. While the average UK full-time income is only £38,600 and for those working part-time, less than £13,000 pa.
The second reason is that changing consumer habits have led to a move away from a career for life to people moving jobs more frequently meaning fewer people want a fixed address and need more flexibility.
This is why the BTR (build-to-rent) market has been very resilient to the challenges of the past 12 months and become increasingly attractive to investors. In October last year, new research from Knight Frank and HomeViews estimated that the volume of capital committed to BTR is £41 billion, up 17% from £35 billion in 2019. Despite the very real challenges faced by the entire property sector last year, BTR has proven itself to be an attractive prospect for investors, landlords and tenants alike.
Interestingly, this opportunity looks set to be more than simply a result of an uprooted 2020. It’s forecasted that BTR completions will double by 2025. Industry moves suggest that this momentum will continue into the future - but to thrive it may need to steer slightly off its current London-focussed course.
Backed by the best-in-business
After its ongoing partnership with Homes England, Lloyds Bank confirmed its commitment to housing by revealing plans to become a major private landlord. While the likes of the Moorfield Group, Quintain and Greystar are upping their investment in BTR.
Of course, it’s no surprise that such a big investor like Legal & General also continues to recognise the potential of the BTR market. Building on its 2017 Build-to-Rent fund, a specialist Suburban Build to Rent (SBTR) business was announced earlier this year. Looking at our own portfolio, this confidence is echoed. Wise Living has the backing of a £75million investment from ICG Longbow and a £100million investment from Triple Point.
By now, it’s apparent that the BTR market will attract a new wave of investment - it’s already happening. Legal & General’s move, as well as the proven success of our strategy at Wise Living, highlights exactly where this funding should be focussed to make smart investments with large payoffs in the future.
Suburban property boom
Traditionally, London and major city centres have been a BTR go-to destination, but those 20 somethings are now all growing up and looking to settle down and start a family and are looking at schooling and amenities compared with cafés and bars.
The capital hosts the highest volume of BTR developments in the UK and in Q4 2020, the amount of completed BTR homes rose by 26% compared to the previous year. However, people are moving and so are the opportunities. Research from estate agents Hamptons International highlighted the growing trend of London renters flocking to the suburbs following the Coronavirus pandemic. In October 2020, 68% of renters had left London in search of a bigger home, while the need for green space and new geographical freedom found from remote working enabled the move.
The opportunities beyond big city living have driven our land purchasing and building activity at Wise Living from the start, moving into locations such as Telford, Boston, Rotherham and Birkenhead. During the first lockdown, all our properties in the first phase and second phase of our Old Brewery development in Mansfield, Nottinghamshire, were reserved online in just a couple of months. The appetite is there and now others, like Legal & General are recognising it.
For tenants, these suburban focussed developments offer a better quality of life, lower living costs but more space. For developers or investors, it’s an untapped market; Legal & General states that less than 1% of suburban BTR developments had benefited from institutional investment, compared to approximately 6% for the urban BTR sector.
A sustainable future?
Like any industry ‘trend’, some might be cautious before making bold moves, yet the forecast is already reassuring.
Indeed, the focus on developing communities outside of London and other major cities has been crucial for our team as we look to the under-supplied suburbs of smaller cities and towns. Though it’s taken years for big names like Legal & General to enter the market, it’s not in its nebulas stages. Rather than signifying the start of something new, it’s bringing the established suburban strategy to the forefront.
Analysis from Savills predicts a pipeline of 8,500 BTR suburban homes both in planning and under construction. With the record investment received in 2020, this seems more than achievable as the sector goes from strength to strength.
In 2021 and beyond, the need for living in big cities for better career opportunities is falling. Huge employers such as Nationwide have already invited staff to “work anywhere”, acting as a tipping point for a wider trend that will no doubt affect all industries.
Now, people and families can focus on living well rather than living close, which investors shouldn't ignore.
