Build to rent investment has been gaining momentum in recent years as a new asset class for property investors. With rising demand for rental accommodation, build to rent provides quality housing with professional management at scale. However, as an emerging sector, there are key factors investors should consider regarding risk, return, market dynamics and policy support. By understanding the opportunities and challenges, investors can make informed decisions to capitalize on the growth in this sector.
Demand is strong but investors need local knowledge
The shortage of rental housing across many major cities provides a strong underlying demand for build to rent. However, property investment relies heavily on local knowledge. Different cities have varied supply-demand dynamics, planning policies, transport links and tenant preferences that require in-depth research. While city centers may have the highest rents, lower income areas with good transport access can also be attractive for build to rent targeting mid-market renters.
Policy support is increasing but remains uneven
Local and national governments are recognizing the role of build to rent in addressing housing shortages. Many have introduced explicit policies to encourage build to rent through faster planning, density bonuses and affordable housing requirements. However, support varies greatly across regions. Investors should research areas where build to rent is a strategic priority and avoid increased regulatory burdens.
Scale efficiencies reduce costs but smaller schemes can also work
Larger build to rent schemes allow professionalized management and efficiencies in construction and operation. But smaller projects can also be attractive if managed cost-effectively, with less capital required. Mixed-use schemes that incorporate retail or office space can enhance returns. Investors should assess the appropriate scale for different locations.
Income stability but lower liquidity than traditional assets
Build to rent investments can provide stable, indexed rental income streams. However, the sector lacks a mature exit market, so business plans require long-term holds. Liquidity will improve as more institutional capital enters the sector. Investors should stress test their ability to hold assets for full market cycles.
Build to rent investment provides an opportunity to capitalize on urbanization and rising tenant demand. However, appropriate due diligence and local expertise are essential given varied market conditions, policy frameworks, and liquidity across regions. By understanding the risk-return profile and aligning it with their investment strategy, investors can benefit from the continued growth of this emerging sector.