Housing delivery from the UK’s nascent Build to Rent (BTR) market is gathering momentum with 105,000 units in the sector: 19,000 complete, 27,500 under construction and 58,500 in the pipeline. Just 10 per cent of homes in the pipeline are houses, whereas 60 per cent of households living in the private rental market occupy houses. It is unsurprising that some of the fastest let-up rates we’ve recorded involve house-led schemes in secondary and tertiary markets that are crying out for new supply.
When most people think of BTR, they immediately picture a new and shiny urban high-rise, situated on top of a well-connected transport hub. But increasingly BTR investors are recognising that there’s a depth of demand for many types of rental homes and that houses present a range of advantages over flats.
With flatted schemes, a developer has to build all the homes at once and can only start letting them once the development is well progressed and completion is in sight. The up-front costs are large, the scheme doesn’t generate income until all the homes are complete and the scheme operator has to let many units or entire blocks at once.
House-led BTR developments don’t encounter these problems to the same extent. Developments are phased to keep pace with tenant demand, which also spreads costs. That also allows income to be received earlier. All this means housing-led schemes can carry less up-front risk and start producing income faster than blocks of flats.
Letting rate evidence shows that houses on the edge of towns and cities can let just as quickly as inner city flats. There’s a deep market for renters who want more space in properties located close to national road networks.
Traditionally, these family renters haven’t been well served by the BTR market, so there is pent up demand for larger suburban homes that are well managed and value for money. Suburban schemes can benefit from a broader catchment area than urban schemes, as residents are more likely to get around by car and rely less on public transport.
Investment manager Sigma Capital rents homes across the Midlands and the North West. Its schemes have let rapidly, with many homes having an agreed letting in place before practical completion. On one of its sites in Liverpool, it achieved an average of 2.4 lettings per week, which increased to 5.4 per week when the offer on-site extended to include two, three, and four-bedroom homes. The chart below shows the rate of lettings during the marketing period.
Letting rate of BTR scheme in Liverpool
Source: Sigma Capital