Market insight What build to rent means for existing investors
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What build to rent means for existing investors

The size of the premium attached to build to rent (BTR) is partly dictated by what happens to rents being achieved by both existing private landlords and similar BTR schemes locally. In this analysis we look at what happens to rental growth when a BTR scheme opens in the neighbourhood.

For developments that opened between 2017 and 2021, we’ve tracked the impact on nearby rental properties owned by both private landlords as well as BTR operators which had been let before and after the launch of the new scheme.

The results were mixed and show that for local private landlords there is a negligible impact on rents, but existing BTR providers end up achieving lower values than they had previously. This is good news for local landlords, reinforcing the fact that the BTR premium is more a product of the additional quality and amenities, rather than a depression of rents locally.

For private landlords, our research shows that in the two years following the launch of a BTR scheme, the rental growth they enjoyed generally continued to outperform the local authority average, although the rate at which it did so dropped. The impact of bigger schemes (where over 100 homes were advertised) is larger than for smaller schemes (less than 50 homes advertised).

However, our analysis also shows that the opening of a new BTR development has a more detrimental impact on similar BTR schemes nearby. The impact on nearby BTR developments is around three times as large as it is on local landlords, meaning for every 1.0% of rental growth lost by small landlords, 3.0% is taken off institutional schemes.

This means that the opening of a BTR scheme near another one knocks an average of 1.1% off rental growth rates for the competition. And it’s only in the second year of operation that this drag on rental growth begins to weaken. Given these results have come in a relatively stock starved market, we would probably expect greater downward pressure in slower markets.

The differing impact on private and institutional landlords is a product of the diff erent type of tenant they attract alongside the rent they achieve. The facilities offered by BTR schemes mean they tend to attract tenants from a much wider area, often with more money to spend, than local landlords. This disparity, along with their regenerative impact, reduces the impact on the local market.

However, given their limited audience, BTR developments, particularly those that have just launched with a competitor nearby, fi nd themselves in fierce competition for tenants. This is likely to weigh more heavily on rental growth in places where there’s a high concentration of BTR developments.

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