Private equity is increasing its bets on the UK rental sector

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Private equity firms and pension funds are betting on UK rental housing, amid a surge in spending and a housing affordability crisis over the past two years.

Agreements to buy or build single-family rental properties totaled £1.5bn at the end of September, more than three times the total achieved in 2021 or 2022, according to data from property agency Savills. This follows last year’s record £1.9bn.

Investors are increasingly favoring single-family homes over large flats known as multi-family developments, as they hope to attract more stable, long-term tenants and homes are easier to build under England’s restrictive planning system.

James Stevens, global head of real estate investment at Aviva, which has invested £600m in the sector since 2020, said: “We believe single-family will be the largest core asset class in (housing).

The proportion of new rental investment in the UK in single-family homes rather than multi-family blocks rose to 54 per cent in the year to September, up from 32 per cent last year and just 5 per cent in 2019, Savills said. .

Investors took almost 5,000 homes in the first three quarters of the year, up 20 per cent on the same period last year, Savills said.

UK institutions including Aviva, L&G and Lloyds are joined by a growing number of international companies. The world’s largest real estate investor has bought Blackstone. About 4,500 rental houses Vistry from late 2023, in two deals worth £1.4bn.

Blackstone, which has long invested in housing in the US, has snapped up tens of thousands of homes in Europe, and financed new builds in the UK. The group’s UK residential businesses have a portfolio of 17,000 affordable homes – and are now expanding into open market rents too.

The Canada Pension Plan Investment Board (CPIB) launched a £1bn fund in October with real estate manager Kennedy Wilson to invest in single-family homes, with an initial £500mn investment.

A separate £750mn partnership was launched in November between private equity manager Graykit and real estate group Gatehouse, which already has a strategy with the Carlyle Group. Sigma Capital Group, an early player in the sector, has grown its portfolio to over 8,500 homes.

Critics blame the influx of private capital into rental housing in many countries as an indictment of the housing crisis, which has forced many families out of their homes. Rent for a long time Mercy increases with large rents.

Institutional investment in rental properties in the UK is low compared to other countries, with only 3 per cent of rental properties owned by large investors – compared to 37 per cent in Germany and 41 per cent in the US.

Investors say institutionally-owned rental housing offers more stability and higher standards than those managed by small, private landlords — and their plans generally increase the number of homes being built. Home builders sales They have fallen.

James Seppala, head of European real estate at Blackstone, said: “Institutional investment can play an important role by adding to the new supply, generating income for key investors while maintaining stability and inflation.”

Last year, investors could expect a 15 to 20 percent discount on homes for sale from big developers, who faced a slump in demand after Lease Trust’s “mini” budget increases in 2022.

“A large part[of the 2023 deals]are likely to be homebuilders struggling to sell their product. “A big part of what’s happened this year is that housebuilders are thinking more strategically,” said Pierre de Winton, head of national residential investment at Savills.

Those offers are shrinking as developers cut production, posing a challenge for investors. Some are also acquiring land and contracting house building firms to provide new properties.

Some private equity managers hope to build large portfolios that can be sold to pension funds, such as fixed income from rental properties. Blackstone has struck one of its first deals, selling 3,000 shared ownership homes worth £405mn to the UK’s biggest private pension fund for a universities superannuation scheme.