Private equity steps up bets on UK rental sector

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Private equity firms and pension funds are betting on UK rental homes, spending record sums in the past two years amid rising demand and a housing affordability crisis.

Transactions to buy or build single-family homes topped £1.5 billion at the end of September, three times the amount launched in the whole of 2021 or 2022, according to data from estate agency Savills, following a record £1.9 billion last year transactions.

Investors are increasingly favoring single-family homes over large blocks of flats, known as multi-family developments, as they hope to attract more stable, long-term tenants and because building homes is easier in Britain’s restrictive planning system.

“We believe the single family will be the largest asset class domestically [residential]said James Stevens, global head of property investment at Aviva, which has invested around £600m in the sector since 2020.

The proportion of new rental investment in the UK going into detached houses rather than blocks of flats 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.

According to Savills, investors bought nearly 5,000 homes in the first three quarters of the year, up 20 percent on the same period last year.

UK institutions including Aviva, L&G and Lloyds have been joined by a growing number of international firms.Blackstone, the world’s largest real estate investor, has bought in about 4,500 rental homes From late 2023 from Vistry in two deals worth £1.4bn.

Blackstone, which has long invested in housing in the US, has broken down tens of thousands of homes in Europe and has focused on new-build financing in the UK. The group’s UK residential businesses have a portfolio of 17,000 affordable homes and are now expanding into the open market. the lease.

The Canada Pension Plan Investment Board (CPPIB) launched a joint venture with real estate manager Kennedy Wilson in October to invest £1 billion in single-family homes, with an initial investment of £500 million.

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

Critics see the influx of private capital in various countries as an indictment of the housing crisis that has locked many families out of home ownership and left them stranded. rent longer large rent increases under mercy.

Institutional investment in rental homes in the UK remains low compared to other countries, with just 3 per cent of rental homes owned by large investors, compared to 37 per cent in Germany and 41 per cent in the US.

Investors say that institutionally owned rental homes offer more stability and higher standards than those managed by smaller, private landlords, and that their plans will boost the total number of homes being built at a time when home builders sale have fallen

“Institutional investment can play an important role in increasing new supply while providing stable, inflation-linked returns for end investors,” said James Seppala, head of European real estate at Blackstone.

Last year, investors could expect discounts of 15 to 20 percent on unsold homes from major developers, which faced a slump in demand after the Liz Truss “mini” budget in 2022 raised mortgage rates.

“Most of it [deals in 2023 was] Housebuilders are probably struggling to sell the product they’re selling. A lot of what’s happened this year is housebuilders thinking a lot more strategically,” said Piers de Winton, head of national residential investment at Savills.

Those discounts have been reduced as developers have scaled back their output, challenging investors.Some are also snapping up land and contracting with housing companies to provide new properties.

Some of the private equity managers are hoping to build large portfolios that they can sell to pension funds that like the steady income generated by rented homes. fund, the Universities Pension Scheme.