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26th February 2018
One housing sector where activity is likely to continue grow in 2018 irrespective of higher interest rates is build to rent. Around £750 million worth of build to rent projects were started involving more than 5,500 units in 2016 and according to Glenigan’s latest Construction Outlook forecasts, further strong growth in the sector is expected in 2018.
The potential market for build to rent remains huge as growing numbers of young people struggle to get on the housing ladder. Recent figures from Countrywide suggest tenants in the UK paid a total of £51.6 billion in private sector rent last year, twice the level seen in 2007.
To judge from a new year trading update from the market leader, Grainger, the private build to rent sector has got off to a good start to 2018. It points to good demand for its rental homes and strong rental growth, ahead of last year. The group’s focus on mid-market homes in areas of growing demand is also paying off. At its latest scheme at Argo Apartments in London’s Canning Town - launched in mid-January - the group has let 40% of the 134 apartments and at rents 3% above the levels forecast.
Grainger has 10 private build to rent schemes underway, including some significant new projects in major cities and since September it has signed four sizeable deals worth £166m. Its total investment pipeline is worth around £690 million to build 4,300 homes and it has an ultimate target of £850 million.
Major recent schemes which the group has secured include Eccy Village in Sheffield, with £32m of forward funding for 237 new private rented homes with completion expected by the end of 2019. In London, Grainger has been chosen as preferred bidder by Lewisham Borough Council to develop 232 private rented homes on a site at Besson Street.
Meanwhile in central Manchester, Grainger has started work on an £80 million scheme near Spinningfields to build 375 homes for private rent. In Birmingham – a key target market for the group – Grainger has started work on a £28 million scheme at Gilder's Yard to build 156 new private rented homes, with completion expected at the end of next year.
The financial group Legal & General, which is emerging as a significant player in the build to rent sector, also sees Birmingham as a promising market. Last month, it agreed the funding for a build to rent site in the city at Newhall Square for £53m. L & G has also recently acquired land in the centre of Brighton for the seaside city’s first build to rent scheme.
Overall, Legal & General has a pipeline of almost 2,000 build to rent homes and by the end of 2019, it is aiming have 6,000 in planning, development or operation. The group is also well-funded. It has raised pension fund capital for a build to rent fund alongside a £600m joint venture between Legal & General Capital and PGGM.
Meanwhile, private housebuilders are also taking initiatives to meet demand in the rented sector. Recognising that housing associations can’t always raise the funds to buy homes, Lincs-based Larkfleet Homes has recently set up a new business, Swift, as a ‘registered provider’ of affordable housing. It will take homes on its sites that are allocated for social housing and manage them directly, finding tenants, collecting rents and maintaining them.
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