Private Rented Sector Survey: How much will Multihousing be worth?

Market in context

The increasing size of the sector is emphasized by the results of our survey, which have informed our estimate that current investment in the sector is £25 billion. This is up from £15 billion at the start of 2016.

The pace of growth in the sector between now and 2022 is also set to increase, with our estimates showing total investment will hit £70 billion in five years’ time, up from last year’s projection of £50 billion in investment by 2021.

The scope for an increase in the role of professional landlords is made clear by the Tenant Survey, which shows that at least three-quarters of all renters are living in properties managed by private landlords.

Across the UK, only 12% of private renters live in accommodation which is run by a large-scale corporate landlord, ranging from large estates, property companies and private institutions.

Investment and yields

When investors were asked where their investments were located in the UK, there were a diverse range of responses, with some investors focussing solely on London, and others more in the regions.

However, the average suggested that investment is weighted towards the Capital, with 65% of investment in London, compared to 35% in the regions.

The data suggests a similar trend in the coming years, although there is potential for the London bias to recede as the market becomes more established.

Increased market activity and demand in London, as well as other external factors, means that yields are currently lower in the Capital than other urban centres around the UK.

Investors expect this to remain the case, forecasting that net yields in London will settle at 3.5% in 2021, compared to 4.4% in the regions. 

Market hurdles

Investors identified planning policy as one of the biggest hurdles for the Multihousing sector at present. This was recognised in the Housing White Paper, published in February – and the Government is now consulting on changing the National Planning Policy Framework (NPPF) to encourage more Build-to-Rent.

There has also been progress in the London Mayor’s draft supplementary planning guidance for the Capital, published late last year.

Land supply is seen as another key hurdle, echoing the concerns of the wider development sector.

The Government has also highlighted this issue in the White Paper, and is consulting on moves to better identify developable land, especially that owned by Government departments.

Investment timescales

Large-scale investors are looking at longer term horizons when it comes to Build-to-Rent, with two-thirds of respondents saying they will hold their assets for a decade or more.

Those looking at a shorter time-frame will have the choice of whether to break up the asset or sell it as an investment.

As the market becomes more established and more liquid, it is likely that the second option will be preferable.