"Institutional investment in residential property, BTR specifically, is set to grow, not as a reaction to legislation but as part of a broader evolution driven by market demand and investor standards"
- Andy Jones - LRG
When the Renters’ Rights Bill gains Royal Assent – anticipated in the autumn - the rental sector will have undergone one of its most transformative changes in decades.
Concurrently, the relative success of residential property investment over commercial investment is attracting new players, particularly institutional investors, further reshaping the landscape of residential property.
Policy as a catalyst for change
The Renters’ Rights Bill, introduced by the Labour government, builds upon the groundwork laid by its predecessor, the Conservatives’ Renters’ Reform Bill. Both pieces of legislation share a common ambition: to professionalise the PRS and create a fairer system. This includes a commitment to raise standards, including through tenancy security and stricter health and safety regulations.
LRG covers the full scope of the rental market – from individual landlords who own a single investment property, to institutional investors who operate larger-scale investments across many geographic locations within the UK, and of course in the growing Build to Rent (BTR) sector. Consequently, we see the pressures of changing legislation and market conditions across the sector. We are strongly in favour of high standards in health and safety, security of tenancies and fair rents, but we are also more than aware of some of the problems facing the sector, including supply and demand.
Changing demographics
According to the English Housing Survey, the number of households renting privately has increased by 93% in the last 15 years, while the number of owner-occupied households has grown by just 3%. The increased number of rentals is not solely linked to mortgage rates or the economy, but is part of a longer-term trend which also responds to the preference among younger generations for more flexibility. The same survey shows a new tenant demographic emerging: the number of renting households with dependent children has doubled since 2003/4, making up 30% of the sector, and the number of ‘comfortable renters’ (middle-class and well-off) is expanding too, representing 44% of the rental sector.
The rising prominence of ESG
Another change being brought about through legislation (not only the Renters’ Rights Bill but also changing regulations, for example, on energy efficiency and safety standards) is the move towards environmental, social, and governance (ESG) principles. High standards in design, energy efficiency, and community integration are now prerequisites for new developments, but also encourage institutional investment. Moreover, the increasing sophistication of property management services, enabled by technology and centralised platforms, supports the growth of larger portfolios.
A recent survey by Federated Hermes found that 88% of UK-based institutional investors consider ESG factors when making long-term investment decisions. Increasingly, these factors are now seen as more important than traditional financial metrics.
The growth of Build to Rent
The rise of the BTR sector epitomises this. We are seeing a substantial increase in ‘professional’ institutional investment in this sector: surveyed in 2022, 70% global institutional investors stated that they anticipated being active in the suburban BTR market within the next five years, a substantial increase from the 42% then active. Furthermore, analysis by the British Property Federation (BPF) showed that in Q4 2024, the BTR pipeline (which includes completed homes, those currently under construction or those in various stages of planning) stood at over 273,700. The total number of completed units has now surpassed 120,000 units, a growth of 23% in completed stock over the 12 months to December 2024.
Written in 2022, our comprehensive white paper, BTR suburban communities: the next stage in the evolution of Build to Rent, found that suburban BTR is key to meeting growing demand as well as meeting the standards that the Government has set out: regional BTR offers fair leases and rents, along with excellent service and property maintenance. The BPF statistics exemplify this: while completed homes in London reached 51,500 in 2024, regional growth outpaced that of the Capital, at 69,000 homes: growth of 31% compared to 13%.
The future for the PRS
Institutional investment in residential property, BTR specifically, is set to grow, not as a reaction to legislation but as part of a broader evolution driven by market demand and investor standards. To succeed, policymakers must support this evolution, ensuring that regulation fosters growth without stifling innovation or supply.
For property professionals, the message is clear: opportunities abound, particularly for those who embrace the sector’s professionalisation. As demand for rental housing continues to climb, the future of residential portfolio investment looks not just promising but essential to the UK’s housing landscape.
