In a further sign of its growing strength as a market, £1.7 billion of institutional investment flowed into the UK Build to Rent (BTR) sector in the first half of 2022, according to the latest research from Knight Frank.
While £762m was committed in Q2 2022 compared to £1bn in Q2 2021, the figure is still 31% above the long-term quarterly average. Overall investment in the first half is 25% higher than the long-term average.
In the two years since the onset of Covid-19, the amount of investment committed to UK BTR has totaled just under £9bn.
Nick Pleydell-Bouverie, head of residential investment at Knight Frank, said: “The figures, which track both on- and off-market transactions, indicate the continued resilience and strong investment appeal of the sector – even in the face of continued inflation in construction costs and a more difficult economic environment.
“The incredibly robust revenues offered by BTR and strong rental growth across the sector continue to bring significant new capital to the market.”
The average deal size for the second quarter was over £75m, compared to an average of £64m per deal in the first quarter. Pleydell-Bouverie noted, “The increase in lot sizes reflects a continued search for scale among new entrants and existing entrants to the market.”
Key deals completed in the second quarter include Grainger’s acquisition of Redcliffe Quarter in Bristol for £128m, the Get Living futures fund from Maker’s Yard in Birmingham for £136m and the forward sale of £125m sterling from Heimstaden to Edinburgh, the latter showing the continued flow of international investment. capital in the UK market.
The positive momentum is expected to continue this year, with additional deals worth £3.1 billion likely to close by the end of 2022. Knight Frank predicts annual investments could reach 4.8 billion pounds by the end of 2022.
Rental growth across the UK has continued to accelerate through to 2022, with many indicators suggesting that rental growth is at its highest level in several years in the UK. According to Knight Frank, London has been performing exceptionally well, with data indicating an increase of more than 20% in rental growth in prime markets.
Lizzie Breckner, partner in Knight Frank’s residential research team, said: “The strong rental performance across the UK is also due to an ever-deeper mismatch between supply and demand. As has been the case since early 2020, the RICS lettings survey points to a significant gap between new tenants’ demands and landlords’ instructions, an imbalance that is likely to keep upward pressure on short- and medium-term rents term.
“At the same time, near-term inflationary pressures will inevitably act as a moderating force on larger increases as household finances are strained.”