UK multifamily investment poised for a sharp rebound
Multifamily housing is set to be the UK's most resilient real estate sector, according to CBRE. While investment this year is likely to be lower than in 2019, it will return to growth in 2021, and outperform other sectors over the next five years.
CBRE has tracked investment into multifamily, or build-to-rent (BTR), since the sector emerged in the UK in 2015. After a strong start to the year, with over £1bn of investment in Q1, multifamily, like all real estate sectors, has seen a significant downturn in investment, as the government lockdown effectively halted activity. As a result, there were only two transactions concluded in Q2, totalling £83m.
Although investment stalled in the last quarter, plans for schemes moved forward. Court Collaboration announced it will bring forward a £125m multifamily scheme in Deritend, Birmingham. Taylor Grange also lodged plans in Birmingham to provide 440 rental apartments. In London, Amro Real Estate’s revised plans for a multifamily scheme in Ealing were approved by the council’s first virtual committee and will deliver 278 multifamily homes.
Looking ahead, there is a substantial investment pipeline with just over £1.4bn worth of deals currently under offer. This is broadly equivalent to the investment pipeline at the end of 2019, which then translated into £1bn of investment in Q1 2020.
It’s little surprise that there was a sharp downturn in investment in Q2, as the lockdown halted activity. But this period has also highlighted the resilience of the multifamily sector. Rent collection rates have remained high, and historically rents have declined less and recovered quicker during downturns, giving investors some confidence to proceed.
“With £1.4bn of deals currently under offer, we anticipate a rebound in multifamily investment in the second half of 2020, and a return to growth in 2021.
“While we may see modest rent falls in 2020, we expect the sector to return to growth in 2021 and outperform other sectors. We are currently forecasting total returns of 5% per annum for multifamily over the next five years. This compares with 3% and 2% per annum, for offices and retail respectively.
Prime net yields continue to range from 3.25% to 4.25%.
Read the report here: CBRE MarketView: UK Multifamily Investment, Q2 2020