Multifamily investment shifts to existing stock in 2024

UK BTR has seen a rise in existing multifamily assets trading this year, with standing stock accounting for more than 40% of total investment in the sector for the first time in the nine months to September 2024.

Some £534m of existing multifamily stock (excluding corporate M&A) has changed hands in the nine months up to Q3 2024. This is more than five times the £101m achieved in the same period last year and up 15% on the five-year average.

For the first time on record, existing assets have made up 42% of investment so far this year. By comparison, the second highest proportion for the same period was 27% in 2020.

Among the schemes that have traded this year are Quintain’s Alameda and Beton at Wembley Park in London, acquired by KKR; AIG’s Broadside, acquired by Citra Living; and M&G’s The Astley acquired by Grainger, the latter two both in Manchester.

Investment in developments continues to be difficult, with viability a particular challenge. Indeed, in many markets, it is cheaper to buy existing multifamily stock than it is to build it.

Consequently, multifamily forward funding has fallen to £363m year to date, down from a five-year average of £1.3bn – and a peak of £1.9bn between 2018-2022.

At the same time, the UK multifamily sector has matured to the point that early investors are reaching the end of their hold period, naturally leading to an uptick in activity. Among the first significant sales was Europa Capital and Mitsubishi Estate’s The Lark in Battersea, acquired by US investor Pembroke at the end of last year.

More recently, Legal & General has started marketing several of its first-generation assets as it gears up to invest up to £1bn in future developments alongside Nest and PGGM.

The increase in the sale of existing assets is the latest example of the key underlying theme that has shaped UK BTR for the last two years: investors finding new ways to enter what is still an operationally resilient sector.

Already, BTR has seen an influx of capital into single-family housing and into more creative funding structures – such as equity joint ventures or forward fundings with profit sharing arrangements. Both have signalled that, due to high occupancy and rental growth amid a shortage of supply, appetite for the sector remains strong despite challenges to multifamily development.

Total BTR investment in Q3 was £542m, falling 52% on the five-year average but up 27% on the same period in 2023. Like last year, activity fell significantly in the third quarter. However, year-to-date BTR has been relatively stable at £3.4bn, down just 6% on the five-year average.

The slowdown in forward funding investment in particular is also evident in the size of the market. Over the last 12 months, the number of operational multifamily homes has risen 23% to about 102,800, but the pipeline of schemes with planning approval or under construction has fallen 13%.

Meanwhile, single family investment also dipped in Q3, totalling just £212m compared to £814m the previous quarter. It nevertheless remains the dominant sub-sector in BTR, accounting for 50% of the year’s total. Following an active first half, single family is also on track to match or even exceed the record-breaking £2.2bn invested in 2023.