June 2021
Where are the opportunities for Build to Rent in the East and South East?
These figures have all been on the rise over the last five years as the number of investors and developers interested in the sector has increased. Yet, with an estimated 4.4 million households in the private rented sector, it is still mainly one of fragmentation dominated by private landlords and small portfolios.
Data from the British Property Federation (BPF) reports that there are now 188,500 build to rent (BTR) homes in the UK development pipeline (including unimplemented but in the planning system), with 57,700 of these now complete (up from 43,236 last year), and 36,000 under construction. Their latest analysis also found that for the first time more of these units (105,722) are located in the regions outside London.
Our concern is the rate at which private landlords are now leaving the sector, and outside London, this has been helping to drive rental growth. While it is difficult to quantify how many have left, the monthly RICS residential market survey has shown a regular pattern of falling new landlord instructions since 2016, around the same time that legislative changes and the additional stamp duty on buy to let investments commenced.
Government policy has clearly been one of discouraging the fragmented private landlord market while at the same time encouraging institutional investment towards the more centrally managed rental units
Government policy has clearly been one of discouraging the fragmented private landlord market while at the same time encouraging institutional investment towards the more centrally managed rental units, with the aim of diversifying the UK housing supply. This will take some time, but a gradual growth in the BTR market has been evident for some years now, moving from a development pipeline of around 15,000 units in 2012 to today’s figure of just 188,500 (BPF). Inevitably, there will be a lag between the declining numbers of private landlords and rising BTR schemes coming on stream, meaning now is a good time to move forward with a BTR opportunity.
The attraction of the BTR model is clear from both the developer’s perspective (long-term and stable income stream), investors (giving the tumult in traditional commercial property income streams) and the tenant side (longer tenancies, streamlined experience, direct-to-reach management). It is easy to see why it has emerged with fervour over the last five or so years, at a time when households were looking to the private rented sector as an alternative to what has been increasingly unaffordable home ownership.
In early 2020 we published our first Build to Rent article in which we examined where the best opportunities for BTR schemes were across the South East and parts of the East, using both current and forward-looking measures. In this update we revisit the same locations across the 109 districts in these two regions (a smaller number than last time as there have been some mergers).
In this latest version we look at the best areas for BTR investment over the next 5-10 years. This means that while our model now excludes current house prices and affordability measures, it includes measures such as projected growth in private renter households, projected house price, future affordability, and employment growth. These have all been weighted to give the same level of importance, to determine which are the best locations for BTR opportunity.
Top 10 locations
Three Rivers
Hertsmere
Basildon
Welwyn Hatfield
Dacorum
Epsom and Ewell
Watford
Stevenage
Elmbridge
Oxford
(future weighting)
135%
135%
134%
131%
129%
128%
126%
126%
125%
125%
2.5-2.9%
2.7-3.2%
3.1-3.5%
2.7-3.1%
2.7-3.2%
2.9-3.3%
3.0-3.4%
3.0-3.5%
2.2-2.7%
3.0-3.4%
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LOCATION
Weighted
score
Current
gross yield
Three Rivers
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Three Rivers, with a score of 135%, comes joint top with Hertsmere. The area is projected to have high house prices coupled with a very high (un)affordability ratio meaning many who live there will find it prohibitively expensive to buy a home and will look to the private rented sector as a result.
Three Rivers is a popular London commuter area, conveniently located just outside the capital with lots of green space. Key towns with good connections include Rickmansworth, Abbots Langley, and Croxley Green (with London Underground services), all with good train services into London Marylebone and quick access to Heathrow via the M25. These connections make the area popular and accessible and fits with the changing dynamics of housing demand towards a more hybrid working model.
While the area currently has a low proportion of private renters, at just 13% of the total population (compared with 18% national average), this figure is expected to grow by around 30% over the next five years.
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Hertsmere
2
Tied for joint top of our list, Hertsmere is located not far from Three Rivers, meaning it is also very well connected with the M1 and M25 motorways both running through. It is also a highly sought-after commuter area with good train connections into the capital from the key centres of Bushey, Radlett and Borehamwood .
Hertsmere has a long history of housing a strong film industry, with several film studios located here. This strong employment base has helped it score highly for continued employment growth over the next ten years, with a cumulative growth of over 10% by 2030.
The area has high house prices, and this is expected to continue over the next five years as it is the 11th most expensive of all our 109 districts and consequently has a high affordability ratio of 12.7 (compared with an average of 9.7 across all our South East and Eastern districts). This makes the area a good candidate for households to seek out the private rented sector as they get priced out of owner occupation.
There are no known BTR schemes currently in the development pipeline in Hertsmere.
Basildon
3
Basildon is the only location in our top 10 that is east of London, in Essex. The area has good connections into London making it a good commuter choice, but importantly it scored in the top of three for projected growth of private renters, at nearly 50% over the next five years, leading to a total of 16,050 households in this sector by 2025.
It also scored very highly for ten-year employment growth at over 12% cumulative. This may be because the area has much inward investment with several major developments planned, including an Enterprise Corridor and a health and education research centre. The health and education research centre may also drive the rise of private renters as this type of employment can sometimes be very transient.
Our analysis also indicates that Basildon has one of the highest gross yield figures at between 3.1% and 3.5%, a very attractive prospect for those looking for potential rental investments.
There are four BTR schemes currently in the pipeline in Basildon:
Market Square
Basildon Town Square
Eastgate Quarter
Trafford House
492 flats
535 flats
unknown
324 flats
LOCATION
Units
stage
Plans granted
Plans submitted
Plans submitted
Plans submitted
Welwyn
Hatfield
4
Yet another location in Hertfordshire, not far from Three Rivers and Hertsmere, to the north west of London. This again means the area is very well connected with the A1 running through it, while the M25 lies just at the southern edge, and the largest conurbations of Hatfield, Welwyn Garden City, Woolmer Green and Little Heath all have railway stations with access into London and areas on the East Coast Main Line.
This area is again a very popular commutable location for those working in London and the towns of Welwyn Garden City and Hatfield have both long been seen as a ‘dormitory towns’ for those commuters. Although both areas are designated ‘New Towns’ they retain much of their original town feel, also making them popular locations in which to live.
Our analysis found that the area is expected to have strong employment growth over the next ten years, while the proportion of private renters is due to increase by nearly 40% over just the next five years. The future affordability ratio of 11.7 also means the area will be less affordable for many, and indeed this is expected to drive the rise in the number and proportion of private renters over the near term.
There are no known BTR schemes currently in the development pipeline in Welwyn Hatfield.
Dacorum
5
Another Hertfordshire location, Dacorum comprises all of Hemel Hempstead, Tring and Berkhamsted and while the district itself just straddles the major motorways of the M1 and M25, there is easy access to both. The area is also well serviced by fast trains into London Euston and this together with the area being very green and leafy, makes it another popular commuter area for those working in London.
Our analysis found that only around 16% of households are in the private rented sector currently, but this is expected to increase by over 40% over the next five years, equating to an additional 4,000 households in this sector. The area also has a high affordability ratio of 11.9 and this is not expected to change over the coming 5-10 years, meaning young people and first-time buyers are likely to find it difficult to purchase a home in the area.
The good commuter connections and the high proportion of those in the private rented sector will clearly make this area a good choice for a BTR investment opportunity.
There are no known BTR schemes currently in the development pipeline in Dacorum.
This strong employment base has helped it score highly for continued employment growth over the next ten years, with a cumulative growth of over 10% by 2030.
We have highlighted areas with strong potential, but this does not mean a lack of opportunities elsewhere. Prospects for this sector are still very strong, and it has been resilient during the pandemic with £1.2 billion invested into the sector during the first quarter of 2021 alone, following 2020 which saw the most investment into the sector in one year. Research also showed that rent arrears across BTR schemes during the pandemic was extremely low, with central management often meaning they could help tenants prepare payment plans, if they needed it. Its resilience during the challenges of the pandemic will only reinforce our view that the sector is an attractive and promising one.
To discuss build to rent opportunities, or anything else in this report, please contact our Head of Residential, Lisa Simon, or Head of Residential Research, Leslie Schroeder.
Although both areas are designated 'New towns' they retain much of their original town feel, also making them popular locations in which to live.
London
St albans
Chelmsford
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Explore the map to discover each location
and to find out more about the top 5
Three Rivers
Weighted Score
Current Gross Yield
FIND OUT MORE
135%
2.5-2.9%
Hertsmere
Weighted Score
Current Gross Yield
135%
2.7-3.2%
FIND OUT MORE
Basildon
Weighted Score
Current Gross Yield
134%
3.1-3.5%
FIND OUT MORE
Welwyn Hatfield
Weighted Score
Current Gross Yield
131%
2.7-3.1%
FIND OUT MORE
Dacorum
Weighted Score
Current Gross Yield
129%
2.7-3.2%
FIND OUT MORE
Stevenage
Weighted Score
Current Gross Yield
126%
3.0-3.5%
Elmbridge
Weighted Score
Current Gross Yield
125%
2.2-2.7%
Oxford
Weighted Score
Current Gross Yield
125%
3.0-3.4%
Watford
Weighted Score
Current Gross Yield
126%
3.0-3.4%
Epsom and Ewell
Weighted Score
Current Gross Yield
128%
2.9-3.3%
There are no known BTR schemes currently in the development pipeline in Three Rivers.
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020 7518 3234
Head of Residential Division
Lisa Simon
EMAIL Leslie
020 7529 1538
Head of Residential Research
Leslie Schroeder
EMAIL Lisa
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THREE RIVERS
2
Hertsmere
Weighted score 135%
Current gross yield 2.5-2.9%
3
Basildon
Weighted score 135%
Current gross yield 2.7-3.2%
4
Welwyn hatfield
Weighted score 134%
Current gross yield 3.1-3.5%
5
dacorum
Weighted score 131%
Current gross yield 2.7-3.1%
Current
gross yield
Weighted score