1、MultihousingReport2022/ 3.2 billion of capital has been committed to the UK Build to Rent(BTR)sector during the first three quarters of 2022,up 10.2%year-on-year.Some 1.5 billion was spent in the third quarter alone,the second strongest quarterly investment figure on record and 60%higher than the qu

2、arterly average for the last five years.Investors have been undeterred by a macroeconomic backdrop characterised by soaring inflation and rising interest rates,but higher financing costs since Septembers mini-budget mean we expect a slowdown in investment in the final three months of the year as som

3、e highly leveraged investors take a pause.AB T R M A R K E T P R O V I N G I T S R E S I L I E N C EInvestment into UK Build to Rent has been strong so far in 2022,with a significant level of capital committed in the first three quarters of the year.S E C T I O N O N E I N V E S T M E N TThat said,d

4、eals are still progressing.Investors previously looking to use debt to finance their purchases are drawing on cash reserves with a view to refinancing later.We have identified a further 650 million in deals in solicitors hands which could trade by year-end,which would take the full year investment f

5、igure to 3.8 billion.While that would be slightly down year-on-year,it would be 31%higher than the 2016-20 long-term average.Our Q4 estimate is a conservative one given ongoing strong demand and the large pipeline of deals currently on the market or under offer,but it accounts for the fact that some

6、 of these deals may take longer to complete and be pushed into early 2023.Should access to finance get easier,or other pressures ease,that figure will rise significantly.BTR is a proven counter-cyclical asset class.Investors continue to be attracted to the sector for a number of reasons:Low volatili

7、ty and resilience of the rental market in times of economic turbulence;Structural supply shortfall of rental homes and subsequent opportunity for scale;Growing tenant demand;Positive rental outlook.Build costs have been a challenge to scheme viability,exacerbated by supply chain delays,as well as la

8、bour availability post-Brexit.Current expectations are that costs are easing(BCIS forecasts 3%growth in build costs in 2023,down from 11%currently),which should support development activity and improve viability.Short term volatility vs long term performanceThere are plenty of other reasons to be op

9、timistic.For investors,the rental market has proven its resilience before,most recently through the pandemic,but also through the Global Financial Crisis,where the peak to trough fall in rents was just 1.4%.The fact that 25%of capital committed since 2020 has come from new entrants to the UK market

10、is evidence of more investors looking to the sector for diversification and defensive long-term income.UK BTR investment volumesQuarterly totalsSource:Knight Frank Research4.5 4.03.53.02.52.01.51.00.50.0200022BillionsQ1Q3Q2Q4UK MULTIHOUSING 20222Strong renter demand On the oper

11、ational side,the supply and demand dynamics in the sector are rock solid.This is reflected by the fact that lease-up and occupancy for schemes launched in the last year has been incredibly impressive.Many schemes stabilised well ahead of expectations in Q3,according to data from Molior London,includ

12、ing some which leased at more than 100 units per month.Furthermore,the labour market in the UK is tight.The unemployment rate stood at 3.6%in October.Wages are also rising particularly among the 25 to 34 age cohort supporting current strong rental growth.Challenges facing the private sales market,in

13、cluding affordability constraints as a result of spiralling mortgage costs will prevent many first-time buyers from getting on the housing ladder.02004006008001,0001,200Dec-00Sep-01Jun-02Mar-03Dec-03Sep-04Jun-05Mar-06Dec-06Sep-07Jun-08Mar-09Dec-09Sep-10Jun-11Mar-12Dec-12Sep-13Jun-14Mar-15Dec-15Sep-1

14、6Jun-17Mar-18Dec-18Sep-19Jun-20Mar-21Dec-21Indexed 100=Q4 2000 All Hotel Industrial Office Other Residential Retail FTSE 250Source:Knight Frank Research/MSCIResidential outperforms other asset classesMSCI Total Return Index,100=Q4 2000Data from MSCI suggests that over the last 20 years the UK reside

15、ntial sector has delivered the highest total return of all other property types(retail,office,hotels and industrial).Rental markets also offer some hedge against spiralling inflation thanks to the presence of shorter leases and a frequent turnover of tenants.While the sector is not immune to the mor

16、e challenging backdrop,we expect that it will again prove its resilience.In turn,this will lead to increased competition for assets and support yields.20.0%15.0%10.0%5.0%0.0%-5.0%-10.0%-15.0%-20.0%Mar-06Sep-06Mar-07Sep-07Mar-08Sep-08Mar-09Sep-09Mar-10Sep-10Mar-11Sep-11Mar-12Sep-12Mar-13Sep-13Mar-14S

17、ep-14Mar-15Sep-15Mar-16Sep-16Mar-17Sep-17Mar-18Sep-18Mar-19Sep-19Mar-20Sep-20Mar-21Sep-21Mar-22Sep-22 Residential(rents)Industrial Office Residential(sales)GFCCovid RetailSource:Knight Frank Research/ONS/MSCIHistorically residential rental markets have proven resilient during downturns Annual%rental

18、 growth(UK)UK MULTIHOUSING 20223Estimated capital committed to UK BTRSource:Knight Frank Research2028:102bn2019:35bn2020:41bn2022:56bnSupply squeeze Added to this are supply-side pinches.The RICS Market Survey continues to report falling landlord instructions,while listings volumes across the UK in

19、October were 43%lower than the five-year pre-pandemic average for the month.The prospect of further reform impacting the buy-to-let sector could reduce private landlord numbers further.Data from the latest English Private Landlord Survey suggests that recent and forthcoming changes to legislation ar

20、e the most common reason for landlords choosing to decrease their portfolio size or to leave the sector,a move which will put further pressure on new supply of rental accommodation.One such legislative proposal is to implement a minimum requirement for letting a property to EPC C rating from 2025(on

21、 new tenancies)and 2028(all tenancies).Our analysis suggests that nearly 60%of existing rental stock falls under that threshold.Valuing the marketBased on our analysis of current operational BTR stock,and stock under construction,we estimate that the value of the market for professionally managed re

22、ntal accommodation in the UK is 56 billion,up 60%from 35 billion in 2019.Looking at the future pipeline,we believe this figure has the potential to nearly double in size to 102 billion by 2028.The prospect of further reform is impacting the buy-to-let sector which could reduce private landlord numbe

23、rs further.Source:Knight Frank Research/ONS1.41.21.00.80.60.40.20.09%8%7%6%5%4%3%2%1%0%Jan 12Jan 13Jan 14Jan 15Jan 16Jan 17Jan 18Jan 19Jan 20Jan 21Jan 22MillionsLabour market resilience UK unemployment and unfilled vacanciesVacancies(LHS)Unemployment(RHS)Source:Knight Frank Research/ONS6.4%5.7%5.5%5

24、.8%7.3%50-6435-5025-3418-2465+Strong wage growthAnnual change in mean pay from PAYE(year to September 2022),by ageUK MULTIHOUSING 20224As recently as early September,BTR yields represented a significant risk premium over 10-year gilt rates.But with the risk-free rate recently jumping to 4%over a ver

25、y short period,that gilt-yield gap has all but disappeared.What is left are lots of questions as to what it means for the direction of travel for residential yields.These questions come after a period of gradual yield compression as the BTR sector matures and investor demand has strengthened.Yet whi

26、le other property sectors can draw conclusions on what happens next based on how assets performed in previous downturns,the same is not true of the BTR market in the UK,given its nascency.With the absence of representative long-run data on UK BTR yields,it is useful to look to more mature markets as

27、 a guide.Take the US,for example,where multifamily yields have been hardening for the last decade.Like in the UK,the cost of US-based debt has risen dramatically in recent months(proxied on the chart by the BAA corporate bond rate),and the risk-free rate has shot up.Debt costs have spiked in the pas

28、t,most notably post-GFC,yet multifamily cap rates proved extremely stable.The data also suggests a lack of relationship to government bond markets,as well as relative stability through the GFC.YIELDS REMAIN STABLE Greater LondonZone 1Prime Regional(Tier 1 cities)UK 10 year gilt0.0%0.5%1.0%1.5%2.0%2.

29、5%3.0%3.5%4.0%4.0%5.0%MarchJuneSeptemberDecemberMarchJuneSeptemberDecemberMarchJuneSeptemberDecemberMarchJuneSeptemberDecemberMarchJuneSeptemberDecemberMarchJuneSeptemberDecemberMarchJuneSeptemberDecemberMarchJuneSeptemberOctoberNovember2000212022Source:Knight Frank Research/Bo

30、EUK BTR yields v risk-free rateMSCI Total Return Index,100=Q4 20009.0%7.0%5.0%3.0%1.0%8.0%6.0%4.0%2.0%0.0%Q1 2002Q3 2002Q1 2003Q3 2003Q1 2004Q3 2004Q1 2005Q3 2005Q1 2006Q3 2006Q1 2007Q3 2007Q1 2008Q3 2008Q1 2009Q3 2009Q1 2010Q3 2010Q1 2011Q3 2011Q1 2012Q3 2012Q1 2013Q3 2013Q1 2014Q3 2014Q1 2015Q3 20

31、15Q1 2016Q3 2016Q1 2017Q3 2017Q1 2018Q3 2018Q1 2019Q3 2019Q1 2020Q3 2020Q1 2021Q3 2021Q1 2022Q3 2022US Multifamily Cap RateBAA corporate bond10 yr US treasurySource:Knight Frank Research/RCA/Moodys/Federal ReserveUS multifamily cap rate v corporate bonds and 10-year US Treasury yieldsWe expect to se

32、e a similar pattern in the UK.Whilst the recent sharp increase in long-dated bond yields is starting to have a knock-on effect on property yields,they are unlikely to increase in parallel,given that rental growth is accelerating at the same time.Therefore,any softening in yields towards the end of t

33、he year is likely to be sentiment driven,reinforced by limited transactional evidence.Longer term,we expect to see further yield compression driven by strong investor demand and the supply/demand dynamics of the sector which continues to drive competition for assets.The prospect of weaker rental gro

34、wth in other property sectors is also likely to lead more investors to pivot to residential in search of long-term income.Indeed,as we outline elsewhere in this report,prospects for rental growth are positive,which should compensate for any comparison to risk-free assets which offer a fixed bond cou

35、pon.UK MULTIHOUSING 20225W H A T I S T H E O U T L O O K F O R R E N T S?TR investors can point to a strong track record of rental growth in the UK,with rents having risen by 21%over the last decade.Future rental growth prospects are key to ensuring competitive returns,particularly given recent incr

36、eases in the risk-free rate.Yet current measures of rental growth track performance within the private rented sector(PRS)as a whole.While this is a useful guide,our analysis of more than 50,000 unique BTR listings from more than 180 operational schemes,offers an insight into how BTR-specific assets

37、are performing.By analysing data on asking rents and matching these to our bespoke market-leading database of BTR developments,we have been able to isolate the change in rental values for BTR-specific assets.How have BTR rents performed?Rental growth for new leases on BTR schemes over the last 12 mo

38、nths has averaged 12.1%,in line with the strong performance of other indices which track change in market rents for new tenancies.Growth has been driven by high rental demand and limited supply;trends that are currently more pronounced in city centres.Longer term,the data suggests that rental growth

39、 for BTR assets has been more measured,with an annualised rate of growth of 3.4%per annum for new BTR leases since 2015.Cumulative BTR rental growth over that time stands at 28%,outperforming inflation and slightly behind the increase in average earnings.A dip in rents in 2020 reflects the emphasis

40、by operators through the pandemic on maintaining occupancy and lease up,as well as a focus on supporting tenants through the pandemic.This was in addition to the comparatively weaker performance of more urban markets through lockdown as cities shut down.Long-term BTR rental performance v CPI and ear

41、ningsIndexed 100=March 2015Source:Knight Frank Research/ONS590Mar 15Jun 15Sep 15Dec 15Mar 16Jun 16Sep 16Dec 16Jan 17June 17Sep 17Dec 17Jan 18Jun 18Sep 18Dec 18Jan 19Jun 19Sep 19Dec 19Jan 20Jun 20Sep 20Dec 20Mar 21Jun 21Sep 21Dec 21Mar 22Jun 22Sep 22Earnings growth outpaced BTR

42、rental growth since 2020,leaving headroom for rents to riseBTR rents have closely tracked higher inflationBTR operators prioritised occupancy and lease-up through COVIDS E C T I O N T W O R E N T A L P E R F O R M A N C EBUK MULTIHOUSING 20226BTR rental indexCPIEarningsMonthly rental payments and bi

43、lls as a%of incomeAll PRS stock,indexed 100=March 2015Source:Knight Frank Research/ONS/Oxford Economics NB.Bills=energy,water and council taxRentRent and Bills55%50%45%40%35%30%Rent as a proportion of incomeQ1 2005Q3 2005Q3 2006Q2 2007Q1 2008Q4 2008Q3 2009Q2 2010Q1 2011Q4 2011Q3 2012Q2 2013Q1 2014Q4

44、 2014Q3 2015Q2 2016Q1 2017Q4 2017Q3 2018Q2 2019Q1 2020Q1 2020Q3 2021Q2 2022Q1 2023Q4 2023Q3 2024BTR rents v PRS rentsIndexed 100=March 2015Source:Knight Frank Research/ONS590Mar 15Jun 15Sep 15Dec 15Mar 16Jun 16Sep 16Dec 16Jan 17June 17Sep 17Dec 17Jan 18Jun 18Sep 18Dec 18Jan 19J

45、un 19Sep 19Dec 19Jan 20Jun 20Sep 20Dec 20Mar 21Jun 21Sep 21Dec 21Mar 22Jun 22Sep 22Urban markets(which dominate our BTR index)underperformed though the pandemic,as renters left city centres and stock levels rose,but have bounced back exceptionally stronglyThe ONS index measures the change in all ten

46、ancies,including re-lets,so tends to be less reactive to market eventsBTR rental indexONS rental index3.4%BTR CAGR since 20151.9%ONS CAGR since 2015FORECASTHow does that compare to the PRS?On both a short and longer-term basis,BTR rental growth has outperformed the official UK rental index from the

47、Office for National Statistics(ONS),which tracks rental growth across all rented homes.The ONS index has averaged 1.9%annual growth since 2015,below the 3.4%recorded for BTR.Over time,and as assets stabilise,there will come a point where any premium over local market performance will end and BTR ren

48、tal performance will run in parallel with the local market.Future analysis of this data will allow us to analyse rental performance by scheme age,market,and price point.Whats the outlook for rents?There is little possibility of rental supply increasing significantly in the short term,even as BTR sup

49、ply increases.There have been more than 260,000 buy-to-let mortgage redemptions over the last five years alone as private landlords look to exit the sector.Meanwhile,unemployment is near record lows,the population continues to rise,wage growth remains strong and access to mortgage finance is restric

50、ting owner occupation which will support rents.Current forecasts from Oxford Economics suggest that average earnings will grow by 20%between 2022 and 2026,but with energy costs set to spike in the near term,there will be a ceiling to what renters can afford.Tenants in newer,more energy efficient BTR

51、 developments,will be less exposed to spiraling energy costs.Prospects for rental growth will also be supported by the fact that the proportion of earnings spent on rent has been steadily declining in recent years and sits below the long-term average.The average renter spent 35%of their pre-tax inco

52、me on rent in 2022,down from closer to 40%five years previously.For couples and sharers,this figure will be even lower.Whilst we expect our BTR rental index will slow from its current highs into 2023 as a result of wider cost of living pressures,the analysis suggests that there is headroom for above

53、 average rental growth to continue.UK MULTIHOUSING 20227W H I C H L O C A T I O N S O F F E R T H E M O S T P O T E N T I A L?There are just over 72,000 complete and operational BTR homes in schemes of 75 or more units across the UK,according The number of complete BTR units across the UK has triple

54、d within the last five years,and the pipeline continues to grow.Some 24%of local authorities now have at least one scheme open and operational.S E C T I O N T H R E E S U P P L YMarket penetration rates remain low in all locationsBTR supply as%of PRS marketSource:Knight Frank,Local Planning Authorit

55、ies,Experian3.7%2.1%8.7%0.6%4.3%4.4%6.6%2.5%3.7%6.1%4.0%9.6%5.7%21.8%2.9%5.9%3.8%2.4%0%10%20%30%40%50%60%70%80%90%100%Complete BTR unitsUnder construction BTR unitsPRS householdsNewcastleSheffieldSouthamptonUKManchester&SalfordBournemouth,Christchurch and PooleAberdeenBathBirminghamBrightonBristolCa

56、rdiffEdinburghGlasgowLeedsLeicesterLiverpoolLondonto our database.A further 57,000 units are currently under construction and an additional 61,000 have full planning permission granted.This brings the total BTR pipeline to 190,000 homes,not including sites in pre-planning.UK MULTIHOUSING 2022/238UK

57、BTR supply By planning statusSource:Knight Frank ResearchSTATUS#UNITS#SCHEMESComplete72,208353Under Construction57,688191Planning Granted62,260202Total192,156746Which markets should investors target?When considering specific opportunities,it is important to emphasise a rigorous and site-specific app

58、roach,but some locations will naturally boast stronger fundamentals than others.To provide some guidance,we have analysed key BTR metrics relating to supply,demand,value,and market potential for local authorities across the UK.The data has been overlayed with market knowledge from Knight Franks inve

59、stment,development,and valuation teams on factors including viability and scale.Established and growth marketsThe maps overleaf outline the results of two modelled scenarios,one based on our recommended weighting across metrics,and one more heavily weighted towards market potential(ie.locations with

60、 strong demand-side fundamentals,but a small pipeline of BTR units).In the first scenario,established BTR markets such as London,Birmingham and Manchester score well,supporting the growth trajectory of the market to date.In the second scenario,the list includes a number of Tier 2 towns and cities wh

61、ich boast strong demand drivers but typically have small pipelines,presenting a strong case for development.Some,such as Oxford and Cambridge,have been on investors radars for a while,but it has been challenging for BTR to compete with open market sales schemes.BTR schemes are getting larger Average

62、 number of units by planning statusSource:Knight Frank Research,Local Planning AuthoritiesComplete205Under construction308Planning granted302UK BTR supply has more than tripled within five yearsNumber of units in complete schemesSource:Knight Frank Research,Local Planning Authorities010,00020,00030,

63、00040,00050,00060,00070,00080,00020000022There are just over 72,000 complete and operational BTR homes in schemes of 75 or more units across the UK.UK MULTIHOUSING 20229EdinburghGlasgowManchesterLiverpoolNewcastleLeedsSheffieldNottinghamLeicesterCoventryBi

64、rminghamCardiffBristolBathBrightonInner LondonOuter LondonGuildfordReadingMilton KeynesSouthamptonBournemouth,Christchurch&PooleCOVENTRYBATHEDINBURGHPopulation growth projection 2021-2031%of population aged under 35BTR market penetrationEmployment growth forecast(2020-2040)Established BTR locations

65、Based on a recommended weighting across componentsBRISTOLMANCHESTER&SALFORDBIRMINGHAMCARDIFF5.8%47.2%17.2%2.5%3.7%53.3%14.3%8.7%3.4%52.0%5.9%6.6%5.0%56.3%14.7%21.8%10.2%55.8%6.1%0.9%7.7%47.2%14.9%2.1%5.9%54.5%18.4%4.4%OUTER LONDON2.4%66.4%12.9%5.1%UK MULTIHOUSING 2022/2310OUR APPROACHOur study of lo

66、cal authorities across the UK analyses 40 economic and demographic indicators relevant to BTR investment and development grouped across six components:value,size of market,demand,supply,potential for BTR and population growth.While we have put forward two scenarios below which we believe can help wi

67、th prioritising opportunities for investment and development,the locations highlighted are by no means exhaustive.Different investors will have different priorities,both in terms of returns but also tenant profile,and accordingly the weightings for each of the components can be adjusted.Variables re

68、lating to income,rental affordability,pricing,house price to income ratios and GVA projectionsCurrent and projected population,number of PRS households,jobs and expected market saturationProportion of young people and young households,size of employment market and economic factorsSIZE OF MARKETVALUE

69、DEMANDSource:Knight Frank Analytics/ONSEsri UK,Esri,HERE,Garmin,FAO,NOAA,USGSNorwichPeterboroughCambridgeChelmsfordPortsmouthTunbridge WellsLeatherheadWokingBracknell ForestWindsor&MaidenheadOxfordWatfordStevenageExeterIpswichNORWICHPETERBOROUGHCAMBRIDGEPopulation growth projection 2021-2031%of popu

70、lation aged under 35BTR market penetrationEmployment growth forecast(2020-2040)High growth markets Based on a weighting more geared towards Potential for BTR and DemandEXETERIPSWICHCHELMSFORDWATFORD-1.3%44.9%10.0%0.0%6.3%40.9%16.5%2.1%-0.2%46.1%27.5%5.5%6.0%52.2%12.2%2.5%1.4%56.1%14.5%1.6%6.8%46.8%1

71、0.5%1.5%3.5%52.5%12.9%0.0%UK MULTIHOUSING 2022/2311Current proportion of PRS households and additional BTR potential metrics.The component also features median rent as a proportion of median PRS household incomeCurrent and pipeline BTR supply and market penetration rateCurrent population of under 35

72、s and population growth projectionsSUPPLYPOTENTIAL FOR BTRPOPULATION GROWTHResidential Capital MarketsNick Pleydell-BouverieHead of Residential Investment Transactions+44 20 7861 5256 nick.pleydell- Jonny StevensonHead of Build to Rent Funding+44 20 3909 6847 Guy Stebbings Head of Operational BTR+44

73、 20 7861 5413 ResearchOliver Knight Head of Res Dev Research+44 20 7861 5134 Lizzie BrecknerHead of Build to Rent Research+44 20 3640 7042 Knight Frank LLP 2022.This document has been provided for general information only and must not be relied upon in any way.Although high standards have been used

74、in the preparation of the information,analysis,views and projections presented in this document,Knight Frank LLP does not owe a duty of care to any person in respect of the contents of this document,and does not accept any responsibility or liability whatsoever for any loss or damage resultant from

75、any use of,reliance on or reference to the contents of this document.The content of this document does not necessarily represent the views of Knight Frank LLP in relation to any particular properties or projects.This document must not be amended in any way,whether to change its content,to remove this notice or any Knight Frank LLP insignia,or otherwise.Reproduction of this document in whole or in part is not permitted without the prior written approval of Knight Frank LLP to the form and content within which it appears.Knight Frank Research Reports are available