Investment activity in UK PRS sector slows markedly in Q1 to end H1 at £1.4 billion, still 20% higher year-on-year

There is strong momentum already in Q3, with just over £500m of transactions under offer, says CBRE, broadly evenly split between London and the rest of the UK.

CBRE says investment in Q2 reflects a combination of forward funding deals (£210.9m) and direct land acquisitions (£148.5m). London accounted for two-thirds of total volume with £232.6m transacted in the capital. The prime regional centres attracted a further £119.5m in Q2.

The higher volume of land purchases this quarter is perhaps an indication that values are now making Build-to-Rent (BtR) more viable.

Investment highlights include:

  • Legal & General exchanged on two sites in London in Q2, marking its largest investment into the sector to date. The two neighbouring sites in Wandsworth will deliver an estimated 1,000 rental homes to the area;
  • L&G also made its first investment in Edinburgh, agreeing to forward fund the 338-home Skyliner scheme in Leith Docks;
  • Long Harbour agreed the funding of a 166-home scheme in Tottenham Hale with Berkeley Square Developments, it forms part of the mixed-use development known as the Berol Yard Pencil Factory and is the first investment of the company’s new £500m BtR fund;
  • M&G extended its partnership with Crest Nicholson at Aborfield Green, Berkshire. The company concluded the funding of a further 104-rental homes at the scheme, in addition to the 114 already agreed;
  • Grosvenor’s £500m BtR scheme in Bermondsey, London, was given a second-chance as the Mayor decided to call in the plans for determination
  • Goldman Sachs made its first foray into the BtR lending market, providing Apache Capital with a £118m debt facility for the construction of its 42-storey tower in Birmingham;
  • PRS REIT secured a further £200m debt facility, bringing its total gross balance of deployable funds to £900m; and
  • Transport for London announced that it had picked Grainger as its preferred development partner to build and manage 3,000 new rental homes across London.

Institutional investment into the PRS has translated into 143,000 homes across the UK, which are either completed or in the pipeline as at the end of Q2 2019, according to the British Property Federation.

CBRE Research added:

“Over the course of Q2 2019, there were 727 starts. This is down from the 1,231 recorded in Q1. A further 1,866 homes completed in Q1, bringing the total number of completed homes to 32,233. This is an increase of 34% year-on-year.

“The BtR market remains stable, reflecting no marked yield shifts between Q1 and Q2 2019. Prime Regional Centres are trending stronger as funds increasingly concentrate on these markets to diversify their portfolios. Prime net yields continue to range from 3.25% to 4.25%.”

james.wallace@realassetmedia.com