COMMENT Single-family rental has quickly progressed from hype to an alternative segment of the residential living investment sector.
More money is chasing living sectors such as student, later living and traditional BTR segments. Attention is therefore also turning to single-family rental, which has similar characteristics.
Demand-side fundamentals are as robust for single-family rental as for any other part of the sector. These are lower-risk, low-density schemes that are faster to build and cost less. Investors make their returns sooner, compared with high-density BTR.
In Europe, it is also a sizeable part of the market. JLL data shows that single-family rental makes up 14% of rental homes in Europe, equating to just over 8m properties. In Ireland it represents a staggering 67% of rental stock, and in France it is 23%. In the UK it is just 7% of stock, but this still represents well over half a million dwellings.
There is clearly a significant opportunity for both investors and renters, in a segment of the market that is structurally under-supported by quality institutional management.
Vote of confidence
Single-family housing investors will struggle with many of the same issues that other BTR investors have elsewhere. A lack of trading stock or experienced managers to support the investment thesis is a key challenge across much of Europe.
However, several dedicated single-family investment funds and ventures have been set up in the past 12 months across the UK and Ireland, including by Legal & General, Round Hill and Packaged Living, among others.
Goldman Sachs’ £150m acquisition of nearly 1,000 homes in the Thistle portfolio was a big vote of confidence for the sector and a sign of the type of investment we can expect in the future.
In more advanced Northern European markets, including Denmark and the Netherlands, single-family rental portfolios already exist and trade, albeit infrequently and often lumped in with more traditional multifamily blocks. Heimstaden’s £1.4bn purchase of HD Ejendomme in early 2021, a platform of mostly terraced houses in Denmark, reflects the growth potential of this nascent market in the UK.
Better standards
Single-family rental also provides the chance to create better housing and more choice for frustrated longer-term renters, particularly those with growing families that need stability for schools and social networks.
Recent moves from Irish politicians to deter institutional single-family ownership shows that the path may be uneven, and it will fall to the industry to make the case for this segment being an important complement to the overall mix of new homes being delivered.
The industry will need to prove that it is a net contributor to new supply, as well as a provider of quality management that will lift standards. At the same time, there will be commercial pressure to identify stock and scale up at pace in order to satisfy hungry investor ambitions. But with two-thirds of Irish renters already living in single-family accommodation, there is already a case to prioritise better rental standards.
In Q1, JLL found that the European living sectors attracted the largest share of investment of all sectors in commercial real estate, surging to €21.9bn (£19bn). Single-family rental made up just a fraction of this figure, but we expect the growth in volumes to be significant over the next few years.
The enormous appetite for investment exposure to “beds” will continue to drive innovative models into pockets of rental demand. Where this investment provides additionality – and successfully demonstrates the benefits to renters and cautious political ranks – we will see the single-family segment flourish across Europe.
Adam Challis is executive director of research and strategy, EMEA at JLL
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