UK multifamily investment rebounds sharply with over £1.4bn of deals in Q3

After the subdued activity in Q2, multifamily investment rebounded significantly in Q3 2020, with CBRE recording a total of £1.43bn of investment, according to the latest Marketview report.

CBRE has tracked investment into UK build-to-rent (BTR), known as multifamily housing in more mature markets, since the sector emerged in 2015. The latest figures mean the multifamily sector is now worth nearly £14bn.

Unusually for the UK market, a large proportion of total investment in Q3 was accounted for by an existing building, as AXA finalised its purchase of Dolphin Square in London. Other transactions concluded in London in Q3 included two forward funding deals. Long Harbour agreed the funding of 315 multifamily homes at Berkley Square’s Berol Yard development in Tottenham Hale, for £156m. And Get Living boosted its London pipeline with the funding of 650 apartments at Lewisham Gateway.

Investments outside of London in Q3 totalled £299m. This equates to approximately 1,700 multifamily homes. The largest of these transactions was the £120m forward funding at New Victoria in Manchester by Pension Insurance Corporation (PIC).

News also emerged in Q3 of investors raising further funds for expansion. Get Living raised £410m from Allianz Real Estate and Local Pensions Partnership. And Swedish Private Equity firm, EQT, has partnered with Sigma Capital to enter the UK market and build a £1bn multifamily portfolio in London.

Looking ahead, there is currently £1.4bn of investment in the pipeline. If this all transacts it would bring total investment in 2020 to approximately £4bn, almost 50% higher than 2019.

Scott Cabot, Associate Director, Research at CBRE said: “The multifamily sector continues to demonstrate its relative resilience, which has boosted investor appetite and is attracting new entrants, including the retailer John Lewis. According to CBRE data, multifamily rent collection levels have remained high, averaging 96% in August. Occupancy levels fell during lockdown, but also remain higher than most other sectors, at 86% in August.

“We continue to forecast that the residential sector will outperform over our five-year forecast horizon. We currently expect residential total returns to average 6.5% per annum to 2025. This compares with 2.7% for retail, 3.7% for offices and 6.2% for industrial.”

Adam Burr, head of CBRE’s Residential Valuation team in Manchester said: “The regional multifamily and single family housing markets have continued to show their resilience in the last quarter, despite some localised restrictions across the regions prior to the introduction of the new 3 tier system. We have specifically seen positive performance from a ‘let up’ perspective for a number of schemes which have become operational across the key regional markets including Manchester, Liverpool, Sheffield and Leeds, with take up rates broadly trending in line with absorption in a pre-Covid environment.

“Over the last few months, we have seen a number of high profile deals across the key regional centres which further underpin the robust nature of the market, and with the emergence of some new investors, some specifically targeting the regional markets, there appears to be a very optimistic outlook in the regional multifamily/single family space”.

Prime net yields continue to range from 3.25% to 4.25%. Sentiment remains broadly positive moving into Q4.

Read the report here: UK Multifamily Investment, Q3 2020