As highlighted in our blog on the CBRE’s UK real estate market outlook for 2024, there are positive prospects of recovery across a range of markets, including the build-to-rent market.
This forecast is particularly welcome given the persistent inflation and 15-year interest rate high that marked 2023. But while the rebound might not be immediately obvious, it’s expected that inflation rates will continue to fall and stimulate investment activity.
With that said, we’re taking the opportunity to dive deeper into the build to rent predictions, focusing particularly on the multifamily context here. Read on as we investigate the rising demand for build to rent, looking at the challenges faced, and the prospects of continued growth over the coming months and years.
The rising demand for build to rent
The imbalance between the supply and demand of rental properties is expected to grow in 2024, providing landlords with the opportunity for higher yields. This has been put down to the higher interest rate environment and previous tax changes, with buy-to-rent becoming an increasingly unviable investment option. The mass sell-off has been combined with persistently high demand among prospective renters, especially among would-be first-time buyers who have been put off by the high cost of mortgages.
The predictions of continued demand have been confirmed by the Royal Institute of Chartered Surveyors (RICS), with maximum occupancy levels expected across operational buildings. According to the ONS average rents went up by a record 6% during 2023. This increase looks set to be repeated, with the CBRE’s multifamily index indicating rental growth at a higher level than other markets. The competition for rental places will only intensify, with landlords able to push up their prices given the widespread lack of availability.
The increased demand might be expected to fuel investment in the building and expansion of rental developments. However, the number of BtR properties scheduled for completion in 2023 was half of that recorded in 2022. This trend is set to continue in 2024, despite the rising levels of rental demand across London and the regions. The impacts have been highlighted by a Zoopla report showing that average renter prices have increased by an average of £2,800 over the last 3 years.
Challenges in the build-to-rent sector
With greatly reduced interest rates and record house price rises, there’s no denying that the last few years have been among the best in terms of buy-to-let investment. However, issues such as interest rate inflation, high costs of construction and increasingly expensive debt have caused some experts to claim that buy-to-let is now dead. This certainly appears to be the case when it comes to the purchase and rental of developed properties in the South East of England.
These alternative strategies are being recommended given the relatively poor return of such BtR investment:
- Buy, refurbish, refinance, and rent – with the conversion of large homes into multifamily properties becoming an increasingly viable option
- Social housing – where properties are rented to housing associations with a potentially significant increase in the rental yield
- Houses of multiple occupation – with properties being let on a room-by-room basis.
Some investors may even look to combine these strategies for the generation of high cash flow to offset the increased interest rates. However, buy-to-rent investments are unlikely to be encouraged by the introduction of new fire safety legislation, such as the specification that tall buildings must be fitted with a second staircase. Such strict regulations have already resulted in the failure of various contractors, with more expected to follow in 2024.
Despite these challenges, buy-to-rent investment rates are expected to remain relatively high in 2024. Besides the potential for high yields, investor confidence is likely to be supported by the wider economic recovery and interest rate stability. The levelling of construction costs and recessionary reversal will also boost the level of interest in forward funding opportunities. Further investment activity could be stimulated by the increased availability of stabilised assets.
The BTR market in 2024 and beyond
Landlords looking to take advantage of the supply and demand imbalance will have to cater for tenants who expect that much extra for their money. This will mean investing in more open communication and technologies designed to maximise tenant satisfaction. Properties must also be developed in consideration of environmental factors, given that BTR residents see this as a vital factor in terms of cost-saving and ESG.
Multifamily owners are at an advantage in having a presence at local sites for the monitoring of tenant demands and problems. However, they should still be looking to optimise experiences with technology. Awareness of rent control and licensing measures must also be maintained, with landlords not taking liberties in light of the considerable tenant demand. Such restrictions might impact the perceived viability of BtR, with other investment options being considered.
Prospective investors are likely to continue their risk-averse approach, relying on housebuilders for the delivery of homes in 2024. However, there may also be wider realisation of opportunities, such as the development of units for older tenants. This prospect has been highlighted in research by the Centre For Aging Better, showing that the number of tenants aged 50-65 has doubled over the last decade. People in this age bracket may well be tempted by the prospect of living in units offering on-site care and community.
Community should also be the focus in terms of appeal to younger renters, as emphasised in our blog on the UK’s build to rent market, technology and innovation. This will involve the development and management of properties in which people of various ages and backgrounds can enjoy a vibrant community-centred way of life. Catering for modern-day lifestyle preferences and the ever-increasing demand for flexible, high-quality accommodation, these properties are being seen as the solution to the UK’s housing crisis.
Successful management of the buy-to-rent market can obviously make a big difference, given the widespread need for housing stock. However, this will mean reimagining and adapting to the dynamic needs and expectations of prospective tenants. There’s every chance of growth, provided that investors stay open to the possibilities and actively embrace the empowering potential of property technologies.
Optimising experiences with Property Inspect
Besides enhancing the tenant experience, property technology can also help landlords and building owners stay on top of maintenance and compliance. This will increase the appeal to prospective tenants who are willing to pay for premium living experiences where safety and luxury are assured. It will also ensure that properties are let in accordance with the Building Safety Act update, with the safety of elevators and other communal features being prioritised.
Complete with features for lease administration, rent collection, maintenance tracking, and communication, such technologies can greatly enhance the efficiency of buy-to-let management. This is the case when it comes to the adoption of the award-winning Property Inspect app. Designed to make block management services that much easier and more efficient, our property inspection and operations software enables the instant delivery of interactive inspection checklists, maintenance of complete audit trails, and identification of property issues.
Build to rent property owners and landlords can really benefit from the raft of purpose-build features, such as:
- Live dashboard for the automation of time-consuming admin duties and seamless communication with all property stakeholders
- Secure login access for the arrangement of online bookings, setting of appointments, and download of vital property documents
- User-friendly template builder, with the optional customisation of inspection checklists and reports
- Circular workflows for the immediate raising of property issues, with the generation of follow-up checklists and contractor work orders
- Integrations with a great variety of third-party applications for the enhanced streamlining of block management and building inspections.
Discover the benefits of enhanced build to rent property management, maintenance and protection with a free trial of Property Inspect.