Birmingham to be top UK city for private rented sector investment

Birmingham will be the UK’s top city for attracting private rented sector (PRS) investment over the next five years, according to new data.

Knight Frank’s inaugural Residential Investment report, which looks at the sector as a whole for the first time, surveyed 43 leading investors with a combined £32bn already invested across student accommodation, investment grade PRS and senior living rental.

The respondents identified the cities where they saw the biggest opportunities in each sector over the next five years.

Birmingham is the best opportunity for PRS by quite some margin, according to respondents, driven by regeneration and infrastructure improvement.

Ashley Hudson, managing partner of the Knight Frank commercial office in Birmingham, said: “Our investor survey shows that Birmingham is expected to outperform all other UK cities over the coming five years, with London, Bristol and Leeds closely behind.

“Birmingham presents an incredibly compelling investment opportunity for PRS, with a rapidly growing population, significant infrastructure and transport improvements and a structural undersupply of new-build PRS product.

“The rapid expansion of the residential sector is essential for the continued success of the City’s economy and its ability to attract inward investors.  As well as providing fantastic places to work, employers have to ensure there are high quality options to house their employees.”

Stuart Eustace, residential development partner at Knight Frank in Birmingham added: “We are entering into an interesting stage in the market with Birmingham’s first three major PRS schemes now taking in their first tenants – The Forum which will deliver 343 units on Pershore Street, the first phase of Exchange Square totalling 618 units, and the Landsdowne at 207 units on Hagley Road.

“Including these three schemes there are approximately 4500 units either built, under construction or under offer from a Build-to-Rent perspective.  At present this represents Birmingham exposure for just under half of the institutional grade investors that we know to be active in the market and the challenge for the remaining funds is to find their first success in the city, while existing funders will be seeking their second acquisition.”

The Knight Frank research also shows that nationally over the next five years the UK PRS sector is expected to leapfrog student accommodation, with the sum of capital invested and committed in the investment-grade PRS rising to more than the total value of the Student Accommodation sector.

The combined value of the sectors in 2025, forecast to be £146bn, means that the sector will start to close in on some of the commercial real estate classes by total asset value, cementing its place as an established mainstream asset class for global investors.

When assessing where investment in the three residential sectors is coming from, the heads of three specialist teams at Knight Frank cited the USA, Canada and the UK as counties from which they have seen the most activity in recent years.

James Mannix, joint head of residential development & investment at Knight Frank, added: “The growth of these sectors is mainly down to investor appetite for diversification, the granularity of occupiers that comes with individual units, demographic and tenure shifts and a housing policy landscape in the UK that is now embracing diversity of tenure.

“While there are significant differences in market drivers for each sector, there are key synergies in construction and operations, making a move across sectors even more appealing for investors.”

Photo: The 259-unit Lionel House private rented sector scheme in Lionel Street, central Birmingham, which has been forward funded by Aberdeen Standard. Early enabling works are already underway, and the 14-storey development is expected to be completed in the summer of 2021.

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