Build to Rent has been a huge trend in the UK over the last 18 months, but why? BtR is a relatively new way of investing in property that promises high returns and relatively low risk. In today’s market Investors have looked increasingly towards Build to Rent as a diversification technique for their portfolios.
One of the major reasons Build to Rent has seen such a boom is because of Covid-19. BtR offers investors high returns and low risk, achieving approximately 8%+ compared to the 2-3% gained from bonds. Build To Rent also takes away some of the hassle that comes with traditional property investment by taking care of things such as tax or tenancy agreements.
Today we dive into the correlation between the BtR Boom and Covid pandemic and how we can use this information to predict the future of the industry.
Why Covid affected the BtR industry
Covid-19 has pushed Build to Rent’s popularity because investors are looking for any way to escape the Covid risk. Build To Rent capitalizes on this fear by boasting high returns and low risk. It can offer an 8% return while the Covid pandemic ravaged traditional property investment not giving much above 2% return. Build To Rent has seen a huge boom in popularity because of covid-19 making it more popular than ever before.
Protecting Portfolios through Diversification
When Covid-19 was first announced, it sent the investment world into a spin. The market was still recovering from the subprime crisis, and investment strategies were facing serious pressure; until now investment risk had been to be measured only in terms of returns, but the events that transpired after Covid-19 transformed investment risk into an entirely different kind of animal.
Over the last 5 years, BtR has proven to be a safe and stable asset class. As investors look to minimize their portfolios downside, BtR has come to the forefront of everyone’s world. We are now seeing an increase of up to 13% year on year since 2019 on the number of active investors looking to enter the market.
BtR Market Saturation
Now let’s look at the other side of the coin, what happens to BtR investment when there is an abundance in market capacity?
We often say here at UK Build to Rent that although the BtR sector seems to be non-cyclical (moves independently of normal economic trends), the sector will suffer from micro-recessions through market saturation.
There is a limit to the population who are looking to rent and can afford a BtR rental value and thus there will be a finite number of rooms that can be occupied in a given city. If the BtR market continues to grow at the rate we are seeing we will see tenancy wars in overdeveloped locations. Like Wembley in London or Manchester. Developments will start to miss occupation and rental targets as tenants are provided with an abundance of high-quality rental options.
A savvy or new investor must look at the popular locations in the UK where the BtR target demographic is currently drawn to and where there are limited competitors.
Conclusion
With the current strong investment in BtR and plans for additional investment, it is important that investors recognise the value risks of the asset class.
The investor demand and appetite for BtR apartments continues to grow and we expect it will continue to do so for the next couple of years. Build to Rent investment has become increasingly popular with different investment strategies pursued by both local and institutional investors.
If you are looking to enter the BtR industry and need a company entry strategy then please contact us at info@ukbuildtorent.com