A new report from international law firm Womble Bond Dickinson has quantified the strength of the investment potential in the UK Build-to-Rent sector.
The analysis also highlights the critical factors affecting funding in the sector, now and in the future.
Research carried out by WBD’s Living Practice sampled the views of over 700 UK BTR developers and funders.
The findings paint an overwhelming picture of a sector in growth with 50% of funders surveyed reporting a very strong appetite for lending to BTR schemes and a similar proportion (47%) still claiming a moderate appetite for BTR lending.
Developers said strong UK rental demand, promising returns and a growing interest in the sector’s potential to deliver much-needed new housing are key reasons why UK BTR is attracting investors, including those from overseas. In addition, over a third (39%) view UK BTR as having more long-term resilience than other classes of real estate.
When it comes to decisions on financing schemes, funders reported that the three most influential factors are: operator experience and financial strength (42%), occupancy levels and rental income stability (36%), and Government policies and regulations (34%).
However, there are a string of common barriers to lending.
Funders reported the key risks as oversupply of locally competing schemes (42%), construction delays (40%) and that the loan market may not support a refinance (40%).
What’s more, while the principles behind the Building Safety Act itself are widely supported, an overwhelming 96% of developers believe the administration of the Act have had a depressive impact on the delivery of BTR.
The WBD report also underlined the importance of Environmental Social Governance (ESG) for BTR developers. An overwhelming 98% of respondents emphasised its importance in shaping funding strategies.
In fact, almost all (95%) respondents state the need to balance profitability with creating tangible benefits for local communities.
However, respondents pinpointed to key ESG challenges, including the high upfront costs of sustainable materials and technologies (39%), balancing sustainability goals with profitability (39%), and a limited availability of skilled contractors for green projects (38%).
Additionally, 34% identified regulatory uncertainties as a key challenge, highlighting the complexities BTR developers face in integrating sustainability while maintaining financial viability.
A full copy of the report can be downloaded here: Building Blocks: Unlocking the potential of UK Build-to-Rent.
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