Regional build-to-rent (BTR) housing delivery is being squeezed by mounting viability pressures amid record investment in the sector, according to Knight Frank’s latest UK BTR market update.
Just over 6,700 BTR homes have been completed so far this year, with London and tier 1 cities, including Manchester and Birmingham, accounting for almost half of all new delivery.
By contrast, tier 2 cities, such as Nottingham, Liverpool and Sheffield, accounted for just 14% of completions, with a further 14% delivered across smaller towns and regional locations.
Knight Frank said viability pressures remain particularly acute outside the largest cities, with many schemes requiring grant funding, greater flexibility on Section 106 agreements or changes to affordable housing requirements in order to proceed.
Lizzie Breckner, head of residential investment research at Knight Frank, said: “While supply continues to increase overall, we’re seeing a growing divide between the largest cities, where schemes are still moving forward, and a number of regional markets where rising costs and tighter development economics are making it harder to bring forward new projects.
“Viability pressures remain, particularly across many regional locations, and are increasingly shaping where development can happen. As a result, multifamily delivery is likely to come under further pressure unless those challenges begin to ease.”
Despite the development challenges, investor appetite remained strong during the second quarter, with UK BTR investment reaching a record £2.08bn. The sector’s completed housing stock has also continued to grow, rising 17% year-on-year to 166,359 homes, while almost 50,000 homes are under construction and more than 125,000 are progressing through the planning system.
Nick Pleydell-Bouverie, head of residential investment at Knight Frank, said: “The investment case for BTR remains incredibly strong. Demand for high-quality rental homes continues to outstrip supply in many markets, supporting strong occupancy levels and rental growth across the sector.
“The challenge now is ensuring that development opportunities can stack up financially so that much-needed new supply can be delivered. That’s where viability remains a key consideration for investors looking to deploy capital into the sector.”
