Build to Rent
Market Update
May 2022

2021 Commercial Real Estate
Investment Market

2021 Commercial Real Estate
Investment Market
£16.7Bn (Q1 2022)
Biggest Q1 since 2015

Key Trends
• Huge demand in Industrial and Build to Rent
• Average yields low and stable…
• Office demand seems subdued
• Hotel market witnessing a huge increase in
demand compared with 2020
• Shopping centres uptick and regen story
• Availability of stock is an issue

Build to Rent Volume
• £5.3 Bn of BTR Deals = 9.3%
• £12.5 Bn of Alternative Deals = 22%
• 2016, BTR = 2.5% of volume
• 2016, Alternatives = 5.8% of volume
• Capital rich market… difficult to execute deals?

Yields...
• Focus on Central Manchester
• Forward funding yields 4.25% to 4.50%
• Compared with 4.75% to 5.00% in 2016
(50bps compression in 5 years)
• Stable yields becoming available
• Sub 4% providing a 50-25bps compression
from forward funding.

Case Studies

Case Studies

Data Benchmarking
• Needs to be standardised across the
sector
• Operational costs disparity creates
net yield disparity
• Gross yield and £psf is more sensible
• Although benchmark schemes are
being completed off market which
makes it difficult for agents to
accurately understand net yields
• Benchmarking off ERV is not
acceptable

Occupational Demand
• Extraordinary lease-up rates – e.g. Kampus
• High levels of demand replicated across all key cities for good
quality product
• Constrained supply over the next 1-3 years
• 2000 to 2010 stock suffering (BTL market)
• We now have a mixture of product at different price points – but
it’s still not cheap?
• BTR is a lifestyle choice and does cost money…

In 2017…
• We discussed the proposed high end nature of the
Central Manchester BTR market…

Operating Costs
• The spread of operational costs is now significant
• 21% to 34% for Central Manchester BTR
• Expensive amenity requires scale
• Permanent void and churn is critical in huge schemes
• Reform needed when benchmarking data
• Difference between commercial real estate investment and
BTR / Alternatives
• Significant savings on single-family homes

Single Family Homes

Single Family Homes
• Market awash with capital – over £5Bn
targeting the sector.
• Volume housebuilders are difficult to work
with and struggle to execute institutional
deals.
• SME House Builders to the rescue?
• Investors creating their own platforms?
• Project Thistle (£150m – benchmark deal)

Difficult deals…
• Stable stock hardly exists… investor
strategies tend to be long term hold
• Forward funding is generally hard work
(for both investor and developer)
• Interest rates rising will begin to reduce
geared IRR profiles
• Capital allocations across different asset
classes can change rapidly
• UK strong value compared with Central
Europe.

Why BTR?
• Discount to VP on forward funding deals
• Not covenant reliant
• Extraordinary levels of occupational
demand across all markets
• Growth captured year on year where
possible
• Portfolio diversification
• Perceived as a safe asset class
• Interesting sector
• Institutionally friendly lot sizes (£30m to
£100m)
• ESG friendly

Summary - Mature Manchester
• Manchester continues to be the BTR Capital of the UK
• Lots of the benchmark data is coming from schemes here
• Interesting to see first generation refreshing
• Understanding the asset class in more detail from a pure
operational point of view
• Entry yields, Op Costs, Absorption, Exit yields etc.
• Mix of product in terms of price point compared with other cities

What about emerging markets?
• Please can we think of a word
more fitting than secondary?
• Viability issues
• Land availability
• Transport infrastructure
• Local amenity
• Local authority intervention
• Case Study…

Case Study… Clay Works

Challenges/Predictions
• Build cost inflation continuing to
cause problems across the board
• Consumer inflation and affordability
• Rising GILT rates and interest rates
• Residual land values to reduce
• Elements of distress – both
developers and main contractors

Challenges/Predictions
• Single family volumes to increase as
a proportion of BTR volume
• 10 years or more of forward funding
with limited stable stock available.
• Volume to become tranquil between
£5Bn and £6Bn
• Local authorities to use BTR to
reinvigorate town centres within
mixed use regeneration master-plans