London leads build-to-rent market expansion
London lettings market continues to remain strong with latest research data showing the UK capital leading the growth in the number of build-to-rent homes year-on-year. This clearly demonstrates the demand for residential rental properties in London, one of the top real estate hubs of the world.
According to a joint report from British Property Federation (BPF) and global real estate services provider Savills, London accounted for 51 per cent (60,530) of the total number of build-to-rent homes (117,893) complete, under construction and in planning at the end of March 2018.
In fact, the total number of build-to-rent homes complete, under construction and in planning across the UK has increased by 30 per cent in the past year. When looking specifically at the number of completed build-to-rent homes, the total has increased by 45 per cent, growing from 14,371 to 20,863, in the same period.
However, the demand for build-to-rent homes is growing in the UK, especially in London. The average rental growth in London year-on-year has been 4 per cent while the monthly growth rate is between 1.5 per cent and 2 per cent. The rental growth in London has remained steady despite several challenges that the housing market faced last year.
The National Planning Policy Framework is a crucial next step in supporting the build-to-rent sector, reforming planning rules, and helping to deliver 300,000 homes a year by the mid-2020s.
The Association of Residential Lettings Agents (ARLA) in its latest report observed a 5 per cent drop in the number of rental homes available for tenants in February 2018 in view of the latest standards relating to energy efficiency. At the same time, the demand for rental properties went up by 19 per cent. With more number of tenants entering the rental market, the gap between demand and supply is widening, leading to increase in rental values.
These latest developments in the lettings market are an encouraging sign for buy-to-let investors and existing landlords, as the rental income is on the growth trajectory. The build-to-rent sector can revolutionise the rental market in the UK, assuring long-term income for landlords and investors.
The BPF has rightly observed in its report that the build-to-rent sector is funded and managed by investors, who require "long-term rental growth for pensioners’ savings". It means the business model is fundamentally dependent on ensuring its customers’ experience of renting is an enjoyable one, and the sector becomes one in which customers are happy to stay if they wish.
The sector has received a boost with the National Planning Policy Framework officially recognising the importance of build-to-rent, in bringing forward new homes and the need to define sites to ensure delivery. At this rate of growth, the BPF expects the build-to-rent pipeline to double to around 200,000 within the next two years.