UK multifamily pipeline slows down amid surge in single family housing

The growth of UK BTR continues at pace, with the number operational homes rising 24% between Q2 2023 and Q2 2024 to just shy of 100,000. However, financial and regulatory challenges have squeezed the pipeline of future homes. There were 86,800 BTR flats with planning approval or under construction at the end of Q2 2024, down 12% from 98,600 the same time last year.

Hurdles to multifamily development last year – including high financing costs, uncertainty over fire safety in tall buildings and rapid cost inflation – saw investment in new schemes plummet. As a result, a rapidly growing proportion of BTR investment shifted to single family housing.

While the economic backdrop is improving, the first six months of 2024 have seen single family continue to dominate the sector.

UK single family housing attracted a record £1.5bn of capital in the first half of 2024, accounting for more than half of the £2.9bn total invested in build-to-rent in H1.

Single family benefitted from a particularly active second quarter, which saw Blackstone and Regis acquire a £580m portfolio of 1,750 homes from Vistry. A further £277m was invested in smaller single family deals in Q2, led by a flurry of transactions by Citra Living – several of these advised by JLL.

At £826m, Q2 was the second strongest quarter for single family on record, making up 59% of total BTR investment – more than in any previous quarter.

This reflects the overarching trends that have defined UK BTR since the end of 2022. Rents rose rapidly last year with supply failing to meet demand. However, with little stock trading, pricing uncertainties – combined with elevated financing and development costs – stalled multifamily transactions.

But the underlying demand for – and undersupply of – rental stock has ensured that institutional appetite for the broader BTR sector remained despite hurdles for multifamily specifically.

Indeed, BTR investment in H1 2024 was up 16% on the five-year average despite multifamily investment falling 40% to £971m.

London calling

Although multifamily investment has yet to recover, overall activity in London has started to rebound in 2024. Last year, the capital accounted for just 15% of BTR deals, compared to an average of 42% in the previous five years. So far in 2024, the total has risen to 28% - £820m.

This is partly due to more than £350m of coliving deals completing in Q1, nearly all of which were in London. While there were no coliving deals in Q2, there was nevertheless a handful of multifamily deals that topped up the capital’s total. This included Related Argent forming a JV with NTT UD to deliver 226 BTR homes at Brent Cross Town and Sable Capital funding O’Shea Group and Galliard Homes’ 176-home Wickside scheme in Hackney Wick.

By contrast, investment in BTR across the Big Six regional markets experienced a sharp slowdown in H1 2024, falling 77% year-on-year to £217m.

Only two Big Six markets – Manchester (with Salford) and Leeds – have secured capital so far this year. The largest deal was Heim Global Investor's £81.5m forward funding of McLaren Living's BeckYard in Leeds. The 375-home development is the first deal for Heim, which recently launched as an affiliate of European real estate investor and manager Heimstaden AB.

Although investment is down overall in the Big Six, Manchester recorded its highest first half total since 2019. L&G's UK Property Fund acquired a 50% stake of Deansgate Square's North Tower from another L&G fund, while CBRE IM forward funded Plot C2 at ECF's Salford Central, which will deliver 196 homes, in a deal advised by JLL on the sell side.

Like London, the major regional cities have seen a slowdown in multifamily transactions, but the capital is ahead of other markets in the growth of the coliving sector, which has helped fill the gap.

We expect greater pricing clarity to emerge in the coming months, with several multifamily deals under offer that should act as benchmarks for investors waiting on the sidelines.