Investors Swoop on British Build-To-Rent Sector in 2019

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Investors Swoop on British Build-To-Rent Sector in 2019

2019 has seen a sharp rise in the number of major property firms turning to Britain’s budding build-to-rent (BTR) sector. The sector, which caters to students and city dwellers seeking affordable accommodation, has seen significant growth while traditional home building and selling has faltered on weak consumer confidence.

In June this year, U.S. real estate firm CBRE Group acquired British property developer Telford Homes for a figure in the region of £267 million pounds, in a deal representing a premium of about 11% to Telford’s stock price at the time. Established in 2000, Telford’s focus is on London, building housing blocks in up-and-coming outer areas of the capital such as Stratford, Bow or Finsbury Park.

In a separate deal announced in the same week, student housing provider Unite bought rival Liberty Living Group for £1.4 billion. The two major transactions in build-to-rent served to establish the sector as one of the most rapidly emerging markets of 2019.

“The UK is in the early stages of a secular shift towards institutionally-owned urban rental housing, similar to what we have seen in the US over the last two decades,” CBRE Chief Executive Bob Sulentie said in a statement at the time.

British Housebuilders continue to Struggle amid Brexit Uncertainty

Traditional UK house builders and developers have been struggling due to a slowdown in European growth and home buyers holding out for further falls in house prices as the country faces uncertainty over plans to leave the European Union.

At the same time, demand for rental property continues to rise, according to the Royal Institution of Chartered Surveyors (RICS), as the amount of rental stock falls, with tax and legislation changes deterring would-be landlords and prompting small-scale landlords to sell up.

This has left room in the market for large players looking to capitalise on rising rents.

Schroders, which has a 2.88% stake in Telford according to Refinitiv data, said in a report earlier this year that investors were being pushed to consider investment opportunities in alternative, non-mainstream sectors.

However, the asset management firm’s head of real estate capital, Robin Hubbard, cautioned that segments like student accommodation and build-to-rent residential had already seen significant interest from institutional investors and yields had compressed as they had become mainstream.

Telford in May reported a nearly 13% drop in annual profit for its fiscal 2019 as it sought to navigate a Brexit-dampened London housing market with an increased focus on low-risk build-to-rent properties.

“The difficult properties to sell have been the very expensive ones. I think a bit of the bottom is falling out of that market. A lot of their buyers were from overseas and with Brexit that’s creating a little bit of uncertainty,” said Paul Mumford, fund manager at Cavendish Investment Management and the 9th biggest shareholder in Telford Homes.

“Telford have decided they would prefer to do a less risky business than the business of building blocks to sell, and they’ve gone into partnerships in order to build to rent.”

Housing Provider Unite Boosts Liberty Living’s Portfolio

Founded in 2000, Liberty Living has a portfolio of 24,021 beds which was independently valued at 2.2 billion pounds as of May 31 this year prior to being purchased by Unite.

“By combining two highly complementary portfolios, the enlarged group will be well positioned to meet the growing need for affordable, high quality student accommodation in university towns and cities where demand is strong,” Unite’s CEO Richard Smith said at the time.

Liberty Living posted turnover of 155.7 million pounds in 2018, an increase of 15%. Unite posted a 7% rise in profit before tax in 2018 to 246 million pounds.

Following the Footsteps of Institutional Investors

Despite the fact that the build-to-rent sector has achieved early maturity due to the transaction sizes in the market this year, there are still opportunities for retail investors. Housebuilders are increasingly seeking different ways of funding new developments, typically targeting consumers rather than institutional investors.

This means there are more opportunities for private investors to enter the market at a time when exponential growth is highly anticipated. Diversified Property is at the forefront of the alternative investment market, providing a gateway between retail investors and lucrative opportunities in the build-to-rent sector. To find out how you can invest in one of the best performing sectors of 2019, contact the team at Diversified Property today.