The UK rental market is unique in more ways than one, and the Build to Rent (BTR) market is no exception. After its strong performance throughout the pandemic and its continued growth ever since, the market is set to remain on an upward trajectory for many years to come.
According to Knight Frank’s latest Multihousing Report, the BTR market has not only experienced a shift in demand from investors, its vast potential could catalyse an exponential increase in values by 2028. But what exactly should we expect?
2022 Market Trends
While there were numerous concerns that the pandemic property ‘bubble’ would suddenly burst once Coronavirus subsided, the rental market – and specifically, the BTR market – continues to grow.
For example, almost £3.2 billion of capital was injected into the BTR market throughout the first three quarters of 2022. Not only is this the second strongest quarterly investment figure on record, it’s also 60% higher than the quarterly average we’ve seen for the past five years.
Knight Frank has attributed these high levels of investment to positive sentiment across the market. Despite the UK’s economic turbulence over the past 12 months, including rising interest rates and soaring inflation, investors have seemingly remained undeterred.
Unsurprisingly, expectations for the final quarter of 2022 were conservative, to say the least. Not only did the property market face the inevitable seasonal drops in activity, but the ripple effects of September’s mini budget were still prominent. That said, the annual BTR investment figure had the potential to reach £3.8 billion.
Why is BTR Attractive to Investors?
BTR is an attractive asset to investors for many reasons, including its low volatility, high resilience and growing tenant demand. The rental market as a whole has proven its resilience time after time, with the global pandemic only reinforcing this.
While GDP dropped by almost 10% during Covid-19, the UK property market thrived. Not only did prices reach new heights, but the rental market defied all expectations and went from strength to strength. This is just one example of the rental market’s resilience, with its performance throughout the Global Financial Crisis being another. During the crash, rents fell by just 1.4%, highlighting its strength during volatile times.
The long-term performance of the rental market has long been underpinned by strong demand. The current demand and supply dynamic in the market is yet another reason why investors are flocking to BTR; the UK’s challenging mortgage market and rising property prices, alongside increasing salaries amongst the 25-34 cohort has contributed to rising levels of demand throughout the rental market.
The Future of BTR
According to Knight Frank’s analysis of operational stock and stock under construction, estimates put the value of the market for professionally managed rental accommodation in the UK at £56 billion, up 60% from 2019.
However, this is only set to increase in the coming years, with Knight Frank’s forecast putting the value of the BTR market at around £102 billion by 2028 – twice the size of its current forecasts.
Naturally, the growth of the BTR market will be pushed by some areas more than others. While the likes of Manchester and Salford are established BTR hotspots, Birmingham still remains relatively unsaturated in comparison.
More specifically, Knight Frank’s research suggests that, currently, Birmingham’s BTR market penetration is just 8.7%, significantly lower than Manchester’s 21.8%. This broad disparity highlights the potential and opportunities in the second city’s BTR market, strengthened further by Birmingham’s growing population of ‘Generation Rent’.