UK Residential investment 2017 review
As we move into 2018, we look back on investment into the Build to Rent (BtR) sector in 2017. How much was invested? Where was it invested? And what’s the outlook for 2018?
CBRE recorded a total £2.4bn of institutional investment into the residential sector in 2017. Investment into the UK’s BtR sector accounted for £2bn of that.
That £2bn represents an increase of 33% from the £1.5bn recorded in 2016. BtR Investment volumes were stronger in each quarter of 2017, with Q4 providing a notable boost to the full year total. The £706m invested in Q4 2017 was almost 60% higher than the same quarter in 2016.
There was a continued focus on forward funding deals (where an investor provides funding for BtR on a site controlled by a developer or house builder. The scheme is then delivered by the development partner) in 2017, which accounted for two-thirds of total BtR investment. Proportionally, that’s the same as 2016, but in absolute terms investment through forward funding increased by 24% to £1.2bn in 2017, up from £970m in 2016. The direct purchase of land also accounted for a larger proportion of transactions. increased competition, and the need to deliver schemes that are purpose-built for the rental market, has driven the increase in these investment types.
As a result, forward commitments (where an investor commits to buy a completed ‘for sale’ block to operate as a rental asset) and purchases of standing stock were lower compared with 2016. This has also been partly driven by the introduction of the additional rate of stamp duty in 2016 which makes these investment structures less attractive.
The £2bn invested in 2017 equates to an estimated 11,270 rental units (based on the number of private rented units stipulated at contract exchange – which of course might change afterwards). This compares with the 6,500 units transacted in 2016. Each transaction in 2017 equated to an average of 270 units, compared with 215 the previous year.
Several participants committed more than £100m in 2017, with Invesco, Grainger and M&G accounting for some of the largest volumes:
- The majority of Invesco’s investment was through its joint venture with Platform. This £116m deal comprised 580 units across blocks developed by Westrock, the backers of Platform_. This was the first portfolio deal of its kind in the UK market.
- Grainger was particularly active in the regions last year, investing a total of £219m and securing six opportunities across Manchester, Birmingham Sheffield and Milton Keynes. It’s estimated that these deals will deliver an estimated 1,300 rental units.
- M&G secured two London deals in 2017 for £138m in total. Another significant London transaction was a joint forward commitment by Henderson Park and Greystar to acquire three blocks from Barratt for £140.5m.
There were also several new entrants to the sector in 2017. These included DTZ Investors, who agreed a forward funding of £30m for Mulberry House (145 units) in Manchester. In addition, Cording Real Estate Group made its inaugural investment with the £40m forward funding of Saffron Court in Nottingham.
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