Institutional investment in Britain's rented housing sector is playing catch up, as it accounts for just 2% of the total rented stock, as opposed to more than 35% in Germany and the U.S.
The rented sector - which includes student housing and retirement homes - has fared better than the wider commercial property market, which is facing tough conditions after a period of soaring borrowing costs and changing working patterns.
"Investors are really keen on all these living sectors, it's a bit like the battle of the beds," said Rebecca Shafran, head of alternative residential research at BNP Paribas.
Aviva, L&G, M&G and Royal London Asset Management told they planned to increase their investments in rental homes in Britain by hundreds of millions of pounds. Aviva Investors has channelled 750 million pounds into the sector in the last 18 months and wants to triple that within three to four years. The company said its latest deal was with housebuilder Barratt (BDEV.L), to deliver 101 rental homes in Cambridge.
Potentially stricter rental regulations are a worry but not as much as interest rates remaining higher for longer, Aviva Investors' head of real estate investment, James Stevens, told.
L&G has been amassing commitments from its insurance business and external investors to increase investment from 2025, head of residential, Dan Batterton, said. Any move towards rent controls needed to be carefully conceived to avoid deterring investors, he added.
Foreign investors are also targeting Britain, with U.S. fund giants PGIM and Blackstone recently striking big deals. Although PGIM told comparatively low returns and high construction costs posed challenges.
Residential was the most preferred sector for investment for European real estate funds as a whole in 2024, data from trade body INREV showed, with the share of their portfolios in homes rising more than three-fold in a decade to 23%. Investment into Britain's build-to-rent sector hit 2.6 billion pounds in the first half of 2024, according to Knight Frank, the highest since it began tracking the market in 2016.
