Is 2022 The Year Of The BTR Bubble?
The alarming thing about bubbles — the economic kind — is that you can’t know they are bubbles until they burst. They can only be seen in the rearview mirror.
The latest data from CBRE suggests UK build-to-rent is getting bubbly, if not strictly a bubble.
UK BTR attracted a record-breaking £4.1B investment in 2021, with a hectic Q4 contributing more than half the total with deals valued at £2.1B. Another £2B was under offer as 2022 dawned, said the firm. If those offers turn into deals before the end of Q1 2022, this will have been a super record-breaking six months.
CBRE said 2021 figures overall were up 14% on 2020, but the growth rate is very much steeper if you look quarter to quarter. CBRE said Q3 racked up just £344M, and the first two quarters £763M between them.
Meanwhile, construction has not kept pace, the rate of growth staying negligible, until last year.
According to the latest BPF/Savills data the volume under construction measured as a monthly total remained frozen at around 20,000 a quarter between 2018 and mid-2021, when it rose to 25,000 a quarter. The result is just 67,000 units completed in the UK, and 42,000 under construction. In short, investor demand has boomed whilst the supply of buyable assets hasn’t. The result is, inevitably, surging prices.
This increases the risk that investor-pricing stretches the thin skin of real-life user-pricing — rental growth — to its bubble-busting breaking point.
Savills has hypothesised that UK BTR yields could fall the 250 or so basis points required to meet the 3.25% recorded in other European markets, such as Sweden. The firm also pointed out that scope for yield compression depended in part of a wide spread between yields and corporate lending rates. That spread may have begun to narrow as interest rates creep up in the face of inflation.
Bubbliness has not deterred some big names. The last few days before the holiday closedown saw the completion of another set of high-value BTR investment deals. German investor Patrizia extended its UK portfolio, funding the 281-unit Olivers Place scheme in Reading in a deal with Berkeley Homes; whilst Europa Capital signed up to support the 203-unit Crown Works in Birmingham. The month’s largest BTR deal saw U.S. investor Cortland back the 559-unit Colliers Yard scheme in Manchester in a deal with developer Renaker.
Also in Birmingham, Cortland and partner Harrison Street have bought the 35-storey Broad Street/Ryland Street site promoted by local developer Taylor Grange.
Meanwhile, New York-based investor KKR and partner Apache Capital have signed a BTR development deal with Moda Living to unlock the 398-unit New Garden Square in Edgbaston.
Notable deals that completed in Q4 2021 included Greystar’s acquisition of a minority stake in the Fizzy Living platform, assuming management responsibilities for the portfolio alongside majority stakeholder ADIA; and Legal & General’s £500M investment into schemes in London, Glasgow and Southampton.
“The build-to-rent investment market had a stellar performance in Q4 with more than £1B of capital committed. This underlines the growing maturity of the UK build-to-rent market and reflects the phenomenal bounce back we have seen in the occupational market over the second half of the year," CBRE Executive Director for Residential Valuation Jason Hardman said. "We expect this momentum to continue into 2022 as the sector continues to go from strength to strength.”
