Buying in to build-to-rent

As corporate landlords tap into healthy demand for rented property in the UK, Sarah Moore outlines how to profit from build-to-rent.

947_MW_P29_Inv-Prop

Tipi and others are touting a new renting boom

Corporate landlords are tapping into healthy demand for rented property in the UK.

Professional landlord Tipi is urging people to "join the rental rebellion". Its Soviet-style advert shows a clenched fist holding a key, and the tagline boasts that it is "throwing the rental rule-book out of the window and making renting better for everyone". Its competitors have similarly utopian slogans. Get Living offers people "a new way of renting", while Fizzy promises that it is "reinventing renting" with "zero faff".

These companies are part of the fast-growing build-to-rent sector in the UK, where corporate landlords, often institutional investors, rent out flats in purpose-built towers. These flats are a cut above your typical grotty flatshare: they often come with access to posh gyms, cinemas and additional security. The build-to-rent model is already very popular in the US, but until recently it had been slow to take off in the UK.

The build-to-rent trend crosses the Atlantic

There are several reasons why build-to-rent is becoming more popular in the UK. Clearly there is a shortage of affordable housing, whether for people to buy or rent, with housebuilding not keeping up with demand. In an effort to level the playing field between landlords and private buyers, the government cracked down on the buy-to-let sector, making it increasingly difficult for landlords to make money from it. As a result, landlords have left the sector in droves, further reducing the supply of rental properties (the number of landlords has fallen by 120,000 in the past three years, according to estate agent Hamptons International).

Yet, over the past ten years the number of rental households has increased by 74% to 4.7 million. So American-style corporate landlords are entering a market with healthy demand either from people who might have accepted they're not in a position to buy property, or who don't want the commitment of home ownership but will pay for a slick rental flat in a fancy block. And it is a lucrative business. On average, the rent on build-to-rent flats is 11% higher than surrounding rented homes, according to an analysis of 25 rental schemes by real-estate services firm JLL. And investment in this sector is going mainstream. For example, investment bank Goldman Sachs recently made its first foray into build-to-rent, putting £184m into what is set to be Birmingham's largest residential tower. By 2025, investors will have allocated £75bn to the professionally managed private-rented sector, says estate agent Knight Frank.

One way to invest in the build-to-rent trend is through Grainger (LSE: GRI). Grainger is the UK's largest private landlord with 8,237 units in cities such as Manchester, Birmingham and London. In April it signed a deal with Transport for London to build 3,000 properties above and around Underground stations. Between 2017 and 2018, the group's earnings grew by 26% to £94m, partly driven by like-for-like rental growth of 4%. Grainger's shares currently trade at a discount of around 20% to net asset value.

Recommended

Why actively managed funds don’t outperform in bear markets
Funds

Why actively managed funds don’t outperform in bear markets

The idea that active funds should outperform in bear markets is logical and compelling. Sadly it’s also wrong
15 Oct 2021
US approves ‘‘bitcoin lite’’ ETFs
Bitcoin & crypto

US approves ‘‘bitcoin lite’’ ETFs

The US financial regulator has begun approving bitcoin-themed exchange-traded funds, but with important caveats.
15 Oct 2021
Properties for sale for around £1m
Houses for sale

Properties for sale for around £1m

From a stone-built farmhouse in the Snowdonia National Park, to a Victorian terraced house close to London’s Regent’s Canal, eight of the best propert…
15 Oct 2021
What the best-performing investment trusts of the past 20 years can teach us
Investment trusts

What the best-performing investment trusts of the past 20 years can teach us

Forty-two trusts have risen more than tenfold over the last two decades. What made the winners stand out? And how can we identify future outperformers…
12 Oct 2021

Most Popular

How to invest in SMRs – the future of green energy
Energy

How to invest in SMRs – the future of green energy

The UK’s electricity supply needs to be more robust for days when the wind doesn’t blow. We need nuclear power, says Dominic Frisby. And the future of…
6 Oct 2021
Inflation is still one of the biggest threats to your personal finances
Investment strategy

Inflation is still one of the biggest threats to your personal finances

Central bankers and economists insist inflation will be gone by next year. We're not so sure, says Merryn Somerset Webb. So if you haven’t started to …
1 Oct 2021
How to invest as we move to a hydrogen economy
Energy

How to invest as we move to a hydrogen economy

The government has started to roll out its plans for switching us over from fossil fuels to hydrogen and renewable energy. Should investors buy in? St…
8 Oct 2021