"The geographic distribution of the sector is broadening as institutional investors increasingly eye suburban markets across regions like the East of England and West Midlands to deploy capital at scale"
- Oliver Knight - Knight Frank
Knight Frank's 2024 Single Family Housing Report, which launches today, has found that investment into SFH soared to a record £1.9bn last year as investors acquired or funded the development of more than 6,200 rental houses.
This represents a fivefold increase compared to the £388m committed in 2022. In total, SFH investment accounted for over 40% of all Build to Rent investment in the UK during 2023, with the remainder targeting multifamily apartment schemes and co-living.
Knight Frank spoke to the leading investors currently active in the SFH space about their future investment plans; together they plan to commit £17bn of capital to the SFH sector over the next five years.
Knight Frank said this could translate to the delivery of over 60,000 new SFH rental homes at current valuations. Should these ambitious investment plans be realised, Knight Frank calculates the total number of SFH rental units in the UK – including existing communities as well as those under construction or with full planning – will nearly triple from the current level of 26,575 homes.
By 2029, 65% of the institutional investors Knight Frank surveyed, stated they plan to significantly increase their investment exposure to the UK‘s SFH market.
While the sector is still in its nascent stages, Knight Frank's analysis highlights the immense potential for the SFH market to play a pivotal role in bolstering housing supply across the UK. A staggering 2.65 million households – nearly 50% of all privately renting households – reside in suburban areas, yet existing SFH rental communities cater to just 0.4% of this cohort's housing needs.
Jack Hutchinson, a Partner in the Residential Investment team at Knight Frank commented: "The single-family housing sector is experiencing a period of significant growth, as evidenced by a fivefold surge in investment volumes in 2023, reaching £1.9 billion, compared to the previous year."
"Despite an improving sales market forecasted, we fully expect this trend in increased investment volumes to continue into 2024 and beyond, thanks to a growing weight of capital attracted to the sector by its strong fundamentals.
"In addition, developers and housebuilders are becoming more comfortable with the concept of incorporating single-family housing into their wider sales and marketing strategies, which is helping to accelerate delivery of much-needed housing.”
Oliver Knight, Head of Residential Development Research at Knight Frank, added: “Our research provides clear evidence of the opportunities for single-family rental housing to play a key role in addressing the UK's housing shortage, particularly for families. The geographic distribution of the sector is broadening as institutional investors increasingly eye suburban markets across regions like the East of England and West Midlands to deploy capital at scale."
Geographic expansion and site selection trends
The report highlights the SFH market's geographic expansion across the UK as investors pursue opportunities in high-growth suburban markets.
While 44% of existing completed SFH rental stock is concentrated in the North West, 87% of the UK's SFH development pipeline is located outside this region.
Analysing future investment targets, Knight Frank said 75% of investors surveyed indicated they are focused on the South East and the East Midlands for new SFH communities, with 70% targeting the South West and 65% eyeing the West Midlands.
Growth driven by partnerships with housebuilders
A willingness by major housebuilders to partner with institutions on Build to Rent initiatives has supported the sharp uptick in SFH investment activity. Knight Frank's analysis found 71% of SFH acquisitions in 2023 were facilitated through direct transactions with housebuilders, either by investors forward purchasing bulk units under construction or via new joint venture development partnerships on future housing projects.
Hutchinson says: "More of these innovative joint venture partnerships between single-family rental housing investors and the nation's leading homebuilders have the potential to significantly increase SFH supply across the UK.
"The five largest homebuilders alone control a land pipeline of over 350,000 plots. If just 30% of those plots were designated for single-family rental communities, it could immediately add over 100,000 much-needed new homes to the burgeoning sector."
Knight concluded: “Higher interest rates and the removal of government support for first-time buyers mean the aspiration of homeownership has become increasingly distant for many. The result is a sharp increase in demand for good quality rental housing from long-term renters.
"The growth of the suburban and SFH market is fundamentally aligned with these changes. There is a clear opportunity for SFH to play a key role in increasing housing supply at a time when the demand for high-quality and sustainable rental housing, particularly for families, is acute. That said, delivery will need to pick up significantly if it is to move the dial in a meaningful way.”
