BTR steers through a year of challenges

After weathering the Covid-19 pandemic over the course of 2020 and 2021, the build-to-rent industry began 2022 with optimism. However, the year turned out to be just as, if not more, capricious – albeit due to very different challenges. As Jonathan Seal, chief executive at Regal London, said: “Everybody thought that with the pandemic disappearing into the rear view mirror, 2022 would be a year of stability and recovery after the trauma of Covid. How wrong we all were.” The first hurdle was Russia’s invasion of Ukraine in February, following which inflation rocketed and developers hesitated as they worked out the impact on schemes. “The Ukraine invasion meant a massive spike in inflation,” said James Mannix, head of residential development and investment at Knight Frank. “We had a pause in activity as people were figuring out what that meant.” Nonetheless, new names made their move to get a piece of the sector, including retail giant John Lewis which started a hunt for development and investment partners for its debut build-to-rent schemes. It later confirmed a tie-up with asset manager Abrdn. Schemes progressing over the year included the £3.5bn Silvertown Quays regeneration project in east London, driven by a joint venture between Lendlease and Starwood Capital, which received £233m of Homes England funding. A joint venture between Alberta Investment Management Corporation and Ridgeback Group became one of the UK’s largest BTR landlords after it bought a £283m portfolio from Angelo Gordon. But macroeconomic challenges continued, including what Mannix called the “substantial self-inflicted wound” of the mini Budget in September and the political fiasco of Liz Truss’s resignation as prime minister after 44 days, which caused a spike in the UK’s risk premium and saw investment activity paused yet again. Mervyn Howard, executive chairman of Apache Capital, said: “2022 was a turbulent year for investment markets. In real estate we have seen investors and lenders re-underwrite and reprice transactions or pause investment activity in response to a variety of market factors.” But Howard added that existing, operational BTR assets have performed well, reinforcing the investment case for the sector as it demonstrates its resilience during market volatility. Knight Frank said in December that a year-end investment figure of £3.8bn would be almost a third higher than the 2016-20 average. Industry experts now have varying predictions on how the BTR market will evolve in 2023. Mannix said: “It looks to me like there’s going to be some trading activity in a recovery market in the first quarter of next year and then more stabilisation going into the later parts of next year – assuming nothing horrible comes around the corner. “The most interesting dynamic next year will be a cocktail of inflation, suppressed demand and potentially a significant loosening of supply-side stuff and reduction in energy costs.” In terms of the investment market, Howard added: “In 2023 UK managers with a portfolio of operational assets will be best placed to attract the wall of patient and global capital that is ready for deployment. “High volumes will target BTR across both multi-family – where the highly-amenitised and serviced class A model has proven its resilience – and single-family, which represents the next growth phase of a sector on the way to becoming a central pillar of the UK housing landscape.” To send feedback, e-mail akanksha.soni@eg.co.uk or tweet @EGPropertyNews Image © Hufton+Crow/VIEW/REX/Shutterstock