Monday, November 23, 2020
Real EstateUK

Build to Rent bounces back in third quarter

Rent

According to CBRE’s latest Marketview report, £1.43 billion of investment was recorded in the last quarter

Investment in the fast-growing Build to Rent (BTR) market bounced back significantly in Q3 2020, according to CBRE’s latest Marketview report.

Following subdued activity in Q2, as a direct result of the coronavirus pandemic, a total of £1.43 billion of investment was recorded in the last quarter.

CBRE has tracked investment into UK BTR, known as multifamily housing in more mature markets such as the US and Germany, since the sector started to properly emerge in 2015. The latest figures mean the BTR sector is now worth nearly £14 billion.

The latest findings showed that, unusually for the UK market, a large proportion of total investment in Q3 was accounted for by an existing building, as AXA finalised its purchase of Dolphin Square in London.

Other major transactions concluded in London in Q3 included two forward-funding deals, with Long Harbour agreeing the funding of 315 BTR homes at Berkeley Square’s Berol Yard development in Tottenham Hale, for £156 million.

Meanwhile, well-known BTR operator Get Living boosted its London pipeline with the funding of 650 apartments at Lewisham Gateway.

Outside of London, investments in Q3 totalled £299 million, equating to approximately 1,700 new BTR homes, with the largest of these transactions being the £120 million forward-funding at New Victoria in Manchester by Pension Insurance Corporation (PIC).

In Q3, news also emerged of investors raising further funds for expansion, with Get Living securing £410 million from Allianz Real Estate and Local Pensions Partnership, while Swedish private equity firm, EQT, partnered with Sigma Capital to enter the UK market and build a £1 billion BTR portfolio in London.

Looking to the future, there is currently £1.4 billion of investment in the pipeline. If this all transacts, it would bring total BTR investment in 2020 to approximately £4 billion, nearly 50% higher than 2019 despite the challenges posed by Covid.

Scott Cabot, associate director of research at CBRE, said: The multifamily (BTR) sector continues to demonstrate its relative resilience, which has boosted investor appetite and is attracting new entrants, including the retailer John Lewis. According to CBRE data, multifamily rent collection levels have remained high, averaging 96% in August. Occupancy levels fell during lockdown, but also remain higher than most other sectors, at 86% in August.

He added: We continue to forecast that the residential sector will outperform over our five-year forecast horizon. We currently expect residential total returns to average 6.5% per annum to 2025. This compares with 2.7% for retail, 3.7% for offices and 6.2% for industrial.

Adam Burr, head of CBRE’s residential valuation team in Manchester, also commented: The regional multifamily and single family housing markets have continued to show their resilience in the last quarter, despite some localised restrictions across the regions prior to the introduction of the new three-tier system.

He added: We have specifically seen positive performance from a ‘let up’ perspective for a number of schemes which have become operational across the key regional markets including Manchester, Liverpool, Sheffield and Leeds, with take up rates broadly trending in line with absorption in a pre-Covid environment.

Prime net yields continue to range from 3.25% to 4.25%, while sentiment remains broadly positive moving into Q4.

Important:
This article is for information purposes only.
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.

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