UK Residential Investment Market Update June 2020
CBRE looks at the resilience of UK multifamily housing in the COVID era
A resilient rental sector in the UK is set to weather the COVID-related downturn, with signs that residential investment volumes will not only pick up in 2021, but returns will outperform other sectors longer term, according to research by CBRE.
All the indicators pointed to a strong 2020 for Multifamily Housing (MFH). With a total of £1.055bn of investment in MFH in Q1, investment levels were the second highest recorded since CBRE began tracking the sector in 2014. The momentum was expected to continue over the rest of the year, with £1.6bn on market and £0.8bn under offer. Rents continued to grow at a steady 1.5% per annum.
But that came to an abrupt halt with the outbreak of Covid-19 and the subsequent lockdown, with estimates suggested around 450,000 buyers and renters put plans on hold. Q2 investment volumes are looking weak, with around half the 19Q2 level currently transacted.
While CBRE expects total investment volumes in 2020 to be below 2019, there is set to be swift pick up in 2021, with the growth in multifamily housing invesment significantly stronger than total investment volumes.
Multifamily housing has historically proved to be more resilient than other property segments, with rents declining less and recovering quicker during downturns. CBRE’s current forecasts suggest rents may fall by up to 2% in 2020, but then return to growth in 2021, with increases of between 2% and 4%.
Other key findings:
- The countercyclical nature of the private rental sector will ensure demand for multifamily housing remains robust, as long-term fundamentals continue to underpin demand. Reduced residential sales in 2020 is likely to boost rental demand, and the market is still under-supplied.
- Rent collection rates currently remain high, and a recent CBRE survey showed 85% of operators had less than 5% of tenants on payment holidays. But risks remain, especially as the furlough scheme winds down, closing at the end of October.
- A CBRE survey of investors shows underlying confidence in the market, with investment volumes set to pick up in 2021.
- CBRE anticipates weaker total returns overall in 2020, but multifamily housing is likely to outperform longer term. The expected total return for MFH is 5% p.a. for next 5 years, outperforming industrial, office and retail.