Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
UK residential property has proved a far better investment bet than shops and offices over the past decade or so. Institutional investors are taking notice. Commercial property continues to be disrupted by sweeping structural trends. But the low volatility and strong underlying fundamentals of UK housing means it is showing up in more global portfolios.
This could mark a significant shift in ownership. Although the UK has about 5mn rental homes, most are owned by small buy-to-let investors. Just a few hundred thousand are in the hands of institutional owners. Britain differs from countries like Germany. There, about a third of rental apartments are owned by professional investors, according to data from Savills.
Successive tax changes have made small-scale letting a less attractive business for UK landlords. That has weighed on housebuilders. The government’s target of 300,000 new homes built in England each year has never been achieved. Just 176,000 new homes broke ground in 2022, according to official data.
Institutional investors could help to prop up new-build volumes, which might ease the UK’s chronic housing shortage. Builders Vistry, MJ Gleeson and Barratt all did bulk deals last year. Investors included Blackstone, Carlyle and Lloyds Banking Group-owned Citra. Falling prices made deals more appealing. So did the discounts that big investors receive on such packages.
Renter demand is high. Listed, build-to-let UK landlord Grainger, which owns about 10,000 apartments largely for private rental, reported 99 per cent occupancy last year. Rents grew by 8 per cent compared to 2022.
Meanwhile, residential property prices are getting cheaper. Indices point to a 5-7 per cent decline in house prices since the 2022 peak. Residential yields are now between 4 and 5 per cent.
Rental demand for single family homes is particularly strong. Higher renewal rates and lower maintenance costs add to the appeal when compared to larger, multi-family properties. Investors are responding accordingly, putting more than £1bn into the subsector last year, according to Savills. It expects institutional investors to put a further £25bn into single family housing in the UK over the next five to 10 years.
The arrival of institutional investors could mean home ownership is a never-fulfilled dream for young UK savers. But an increase in new homes available to rent will still be welcome.
Lex is the FT’s concise daily investment column. Expert writers in four global financial centres provide informed, timely opinions on capital trends and big businesses. Click to explore
