"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"
- Robert Sadler - Excellion Capital
New insight from Excellion Capital has revealed that the number of build-to-rent homes in the UK has increased by an estimated 173% over the past five years, while investment into the sector hit a record high in 2024.
From London to the regions, build-to-rent is rapidly eclipsing build-to-sell as the most promising area of property for investors to be focusing on.
The term 'build-to-rent' (BTR) refers to 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 at pace. Over the past five years alone (Q4 2019 – Q4 2024), the number of BTR homes across the nation has increased by 173% to total an estimated 123,539 completed units. In 2022, an estimated 10,300 units were completed across the UK, increasing to roughly 18,000 in 2023 and another 18,000 in 2024.
However, even with this rapid growth, the BTR sector still only accounts for an estimated 2.2% of the UK’s total Private Rented Stock (5.6m)*, proving that there remains tremendous room for growth.
London’s mature BTR market leading the way
While the BTR sector is growing up and down the UK, London is leading the way with the most mature market. In fact, additional data shows that, as of Q4 2024 (latest available), London alone is home to 54,352 completed BTR homes, marking an annual increase of +14.5% compared to Q4 2023.
However, while London leads the way, the data suggests that the rest of the country is catching up with the same dataset showing that the number of completed regional BTR homes increased by +19.1% over the same period of time (Q4 2023 - Q4 2024), giving the nation an overall supply increase of +17.1%.
This might suggest that London’s mature market has now become relatively saturated, meaning that there is a greater need for more BTR developments in the regions. Perhaps investors looking to take advantage of the sector’s growth should focus their attention outside of the capital.
Investment hits an all-time high
This rapid growth comes as investment into the sector hits an all-time high. In 2024, an estimated total of £5.2bn was invested in BTR across the UK, marking an annual increase of +11%. £1.9bn of this came in the final quarter of 2024 alone.
Investors taking advantage of superior yields
Excellion has also analysed average yield data for the London BTR sector and found that BTR properties provide landlords and investors with stronger yields than the general Private Rented Sector.
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%.
This should make the regions attractive to smaller developers and investors who are income-focused, due to the fact that these projects will be comparatively cheaper to execute than those in London.
Why are BTR yields higher?
The BTR sector’s higher yields are a result of the ethos on which the sector has been built, which differs substantially from that of the traditional rental market, all of which appeals to a more discerning tenant.
BTR gives great emphasis to a higher quality of life and a superior tenant experience. Properties are finished to a high standard, often with top quality fixtures, fittings, and features. Tenants are also often given more freedom to personalise their homes and, perhaps most significantly, are given the opportunity to sign on for much longer tenancy periods than those provided by other types of PRS homes.
Furthermore, BTR developments are often populated with additional perks, amenities, and services to enhance the living experience, such as concierges, on-site gyms, and complimentary offices/workspaces. In fact, BTR developers often work to form partnerships with businesses and tradespeople to offer tenants deals and discounts on everything from local restaurants to hairdressers and even taxi firms.
All of this helps make the BTR experience a step above anything typically found elsewhere in the UK rental market, and this high standard enables developers and landlords to charge a premium on rent, which discerning tenants are more than happy to pay.
“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," explained Excellion Capital's vice president of real estate, Robert Sadler.
"This is a sector that is growing at astonishing pace," he added, "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 focusing 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.
Sadler continued, "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 represent 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.”, he concluded.
