Developers, investors and funds backed a record number of build-to-rent homes last year, committing some £5.2bn to provide 22,324 homes.

Annual investment figures are more than double those of two years ago, a sign of investors flocking to stable residential assets in the UK during the pandemic. In 2019, £2.6bn was invested in BTR.

There were 72 BTR deals in 2021, up from 38 in 2020 and 28 in 2019, according to EG Radius.

The investment peak was driven by a flurry of deals in the final quarter, which saw £2.3bn committed, adding 8,264 homes, as funds rallied in the busiest period on record – with prime city schemes, new strategies and M&A all in play.

End of year rush

The biggest deal during the fourth quarter was Greystar’s acquisition of Metropolitan Thames Valley Housing’s 16% stake in BTR company Fizzy Living, valued at £400m. The company was started in 2012 and grew a portfolio of 1,000 homes in London.

“Having laid the foundations for a thriving BTR market, the time is right for MTVH to sell its minority stake in the business, and to use its pioneering spirit to forge new paths,” says Geeta Nanda, chief executive of MTVH and co-founder of Fizzy Living. “Investors continue to recognise the growth potential of BTR, evident through the record investment in 2021.”

Elsewhere, Get Living invested £155m in a forward funding deal with Hub and Bridges to build 429 homes at The Landing in Maidenhead as part of new expansion in commuter belt towns.

Grainger paid £141m for 401 homes at Merrick Place in Southall, west London, in its largest forward funding deal to date.

Prolific buyers

EG Radius counted 50 different investors, of which 14 were new entrants to the market – with debut deals from KKR, Singapore’s CDL and Heimstaden Bostad, among others. This compares to just 18 different ventures investing into BTR in 2019.

The average scheme size was 328 homes, up from 239 in 2019. However, the average deal size has dropped from £86m in 2019 to £78m this year, due to a large number of early development deals and smaller transactions.

In 2021, QuadReal committed the highest level of investment, opening the year with the £570m deal for Realstar’s London and Manchester standing properties. The pair have committed to doubling the £1.5bn rental portfolio in five years, and subsequently expanded to Leeds adding a £100m scheme from Hub and Bridges.

Grainger was the most prolific dealmaker, funding six new schemes to bring forward 1,654 new homes. Grainger was followed by Legal & General and Edmond de Rothschild REIM, both inking four forward funding acquisitions, in locations from Southampton, to Glasgow, to London.

City diversification

The capital continued to attract the bulk of funds, with £2.2bn in 2021 making up 41% of capital committed and fuelling some 6,587 homes. This was followed by Birmingham, with £8bn in deals for some 2,927 homes and Manchester at £2.8bn providing a further 1,512 homes.

In 2021, BTR investment poured into 26 different cities, compared to 15 in 2020 and just 11 in 2019. Two years ago, some £1.9bn of BTR buys in London contributed three-quarters of total funds committed.

As investment increases and funds look further afield, the product is also evolving. Ryan Prince, vice chairman at Realstar and founder of Uncle, says: “Whether it is to cater for a flexible WFH system or to integrate a new workout schedule, there is now great demand for multi-functional spaces and greater amenities within homes that can be utilised to fulfil various tasks, which we are actively building for.”

But as the sector looks to continued growth in 2022, there are still challenges. New policy from government and taxation proposals could have a dramatic effect on investment. The long-awaited Planning Bill, a high-rise levy to pay for building safety and tenancy and eviction reform are all on the agenda.

Writing for EG last year, Grainger chief executive Helen Gordon stressed the importance of ensuring new legislation works for landlords to help create safe communities. Gordon said: “Not all landlords have the in-house infrastructure of legal teams, credit controllers and on-site managers to support and manage problems caused by bad tenants. For smaller landlords these challenges can often be the final straw and forces them to exit the market.”