Boutique investment firm Excellion Capital claims that Build To Rent is rapidly eclipsing Build To Sell as the most promising area of property for investors to be focussing on.
BTR consists of purpose-built residential buildings or developments designed for rental occupancy which are most often owned by, and managed by, one party. This separates BTR from a traditional residential block in which the contained properties are owned by different occupants or landlords.
Excellion’s analysis of BTR volume data shows that the UK’s market is growing. Between Q4 2019 and Q4 2024, the number of BTR homes across the nation has increased by 173% to total an estimated 123,539 completed units.
But the BTR sector still only accounts for an estimated 2.2% of the UK’s total Private Rented Stock (5.6m).
London has the most is leading the way with the most mature market. It’s home to 54,352 completed BTR homes, marking an annual increase of +14.5% compared to Q4 2023.
In 2024, an estimated total of £5.2 billion was invested in BTR across the UK marking an annual increase of +11%. Some £1.9 billion of this came in the final quarter of 2024 alone.
At the start of last year, the average BTR yield in London stood at a healthy 4.93%, providing investors with greater returns than the capital’s PRS market which offered an average yield of 4.45%.
The data also shows that average BTR yields in the north east of England sit at 7.65% while in the nation’s secondary cities yields average between 5%-6%.
A spokesperson for Excellion says: “It is our view that property investors should now be thinking about pivoting away from Build-to-Sell (BTS) and towards Build-to-Rent, particularly outside of London.
“This is a sector that is growing at astonishing pace. London has been a useful proof of concept for both the demand for BTR homes and the returns available to investors, so now it’s spreading across the whole country, not least our secondary cities such as Manchester, Newcastle, and Birmingham.
“Investors should also be aware that some lenders are now showing greater enthusiasm for BTR over BTS. In fact, some of them are focussing purely and exclusively on BTR due to concerns about the exit from BTS developments. At Excellion Capital, we have a long track record of helping investors and developers secure the finance needed for this type of project at the most attractive rates.
“Since rates have risen sharply, many developers have struggled to repay development loans on BTS developments as a result of slow sales and reduced selling prices. As such, developers have been forced to take on development exit loans or retain units for rent. On the other hand, buyers of stabilised BTR developments tend to be large institutions which represents an extremely attractive exit for developers.
“So, with high market demand, strong yields, greater availability of finance, and the opportunity for a clean exit, we very much expect to see more and more developers showing preference for BTR over BTS.
“While interest rates remain relatively high, developers should be thinking about and planning for new projects later in the year when rates are expected to fall and cost inflation to settle. Additionally, the nation’s continually strong rental demand will put upward pressure on rents, which will help to offset elevated development costs.”
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