Despite record levels of investment into the sector in recent years, there are still only around 77,000 completed, professionally managed Build-to-Rent (BTR) units in the UK, which accounts for less than 2% of the total UK Private Rented Sector (PRS) market. The PRS itself only represents 19% of the total housing market.
This compares with Germany, for example, which has the highest proportion of renters in Europe, with over 50% of the population living in rented accommodation and 40% of those rented homes being institutionally owned. If the BTR sector in the UK provided a similar proportion of homes in the PRS sector, that would equate to around 5.6 million homes — over 72 times the size of the UK Build-to-Rent sector today.
According to Cushman & Wakefield in their Q3 2022 Build-to-Rent report, total BTR investment in 2021 amounted to £4.2bn. In 2022, up to the end of Q3, total investment was running at £3.67bn. Q3 alone saw £1.17bn of investment, a 95% increase over the same period in Q3 2021.
To illustrate the scale of the BTR opportunity in the UK from a capital investment perspective:
- Using an average rent across a BTR portfolio of £1,500 per month per unit and an average capitalisation yield of 4.0%, the total capitalised investment value of the UK BTR sector today is around £26 billion.
- However, if the market reaches the same level of maturity as Germany has currently achieved, using the same rental and yield assumptions, the UK BTR sector would be valued at around £1.8 trillion.
- At the current rate of inward investment into the sector, that would take approximately 440 years to achieve.
In terms of the future development pipeline within the sector, the British Property Federation estimates that approximately 162,000 units are either under construction or in planning. Including the 77,000 units which are already in operation, the UK BTR sector — existing units, planned, and under construction — represents a capital value of around £81 billion.
If the market reaches the same level of maturity as Germany has currently achieved, using the same rental and yield assumptions, the UK BTR sector would be valued at around £1.8 trillion.
This further illustrates how far the sector still has to go in the UK before it even begins to become mature.
The future growth of the UK BTR sector is likely to be driven by a number of factors, both macroeconomic and government policy. Over time, the proportion of professionally managed schemes will replace individual PRS landlords, who are choosing to or being encouraged to leave the sector, together with a general shift towards a rental model within the UK housing sector.