UK: The UK BTR market attracted £4.3 billion of allocated capital in 2022, a new record, according to Savills.
The company predicts the the sector will continue to be an attractive one for investors despite economic headwinds.
Polly Simpson, head of multifamily development (operational capital markets division) at Savills, said: “Multifamily continues to be very attractive to investors in the current economic climate, given its inflation-matching characteristics and structural headwinds, including increased demand from renters, a supply shortfall and challenges to home ownership. Yields have proven resilient in relation to other real estate asset classes, supported by rental growth and strong operational performance. Those who have already invested in multifamily over the last few years have enjoyed rising rents, high occupancy and record lease up rates, which has more than compensated for higher costs across their business.”
Savills’ most recent Investor Sentiment Survey, for Q3 2022, revealed that nearly two-thirds of European investors are likely to invest in UK BTR in the next 12 months. Demand has been driven by consistent rental growth and a shortage of rental homes relative to demand.
Guy Whittaker, head of BTR Research at Savills, said: “Yields softened as a result of market uncertainty during the second half of 2022. But strong rental growth has meant that this has not fed through to capital value falls. As we move into 2023, investors will be looking to see increased liquidity in the market, which will help them firm up fair market pricing. Investors will also be keeping an eye on rental growth and what is happening to the long-term, risk-free rate over the coming months. Savills expects rental growth to continue and have forecast 6.5% rental growth in 2023. With legacy deals closing and new opportunities coming to the market, we do expect to see a rise in investor confidence as we continue through Q1.”
Savills says that 80 per cent of UK multifamily investment has come from 36 investors to date, of which many are ungeared or have a low gearing. Savills estimates that nearly two-thirds of this group will be able to deploy equity with low gearing in the next year.
It also expects BTR to take up a greater share of housing starts in 2023. Nearly 16,000 BTR apartments started in 2022 across England.
“A recognised benefit of multifamily is that it can accelerate housing delivery as it allows developers to continue to deliver homes to buyers while also delivering for large-scale investors. On larger sites in particular, multifamily can increase delivery rates over and above the normal annual target for open market sales due to its more diverse occupier base, allowing both tenures to be delivered on the same site at the same time,” added Simpson.
The report is a boost for the sector after recent figures from the British Property Federation (BPF) revealed that the BTR sector’s growth had shown to half of its five-year average, with construction starts falling by 24 per cent y-o-y in Q4 2022 as rising build costs impacted delivery.
