Investors Eye UK BTR: New Report Reveals Key Factors Propelling BTR Investment Appetite

A new report from international law firm Womble Bond Dickinson (WBD) has quantified the strength of the investment potential in the UK Build-to-Rent sector (BTR). The analysis also highlights the critical factors affecting funding in the sector, now and in the future.

Research carried out by WBD’s Living Practice sampled the views of over 700 UK BTR developers and funders.

The findings paint an overwhelming picture of a sector in growth with half (50%) of funders surveyed reporting a very strong appetite for lending to BTR schemes and a similar proportion (47%) still claiming a moderate appetite for BTR lending.

Developers said strong UK rental demand, promising returns and a growing interest in the sector's potential to deliver much-needed new housing are key reasons why UK BTR is attracting investors, including those from overseas. In addition, over a third (39%) view UK BTR as having more long-term resilience than other classes of real estate.

Tom Willows, Partner, Head of Womble Bond Dickinson’s Living Practice, said: “This huge vote of confidence for UK BTR is testament to the vital role that the sector plays in tackling the UK’s housing crisis. Indeed, nearly two-thirds (65%) of those we surveyed confirmed this, while almost three quarters (74%) said many housing projects in underserved areas would not be possible without private investment.”

Financing factors

When it comes to decisions on financing schemes, funders reported that the three most influential factors are: operator experience and financial strength (42%), occupancy levels and rental income stability (36%), and Government policies and regulations (34%).

However, there are a string of common barriers to lending. Funders reported the key risks as oversupply of locally competing schemes (42%), construction delays (40%) and that the loan market may not support a refinance (40%).

What’s more, while the principles behind the Building Safety Act itself are widely supported, an overwhelming 96% of developers believe the administration of the Act have had a depressive impact on the delivery of BTR.

John Connor, Partner, Head of WBD's Financial Institutions sector, explained: “These decision-making factors are fascinating. There are only so many experienced operators around so, if developers are being encouraged to use the same partners on all their schemes, that could constrain the market.

“It’s also interesting to see construction delays as a key risk as well as concerns about the Building Safety Act. While everyone agrees it has provided much needed changes to building regulations post-Grenfell, teething issues with the administration of those regulations have made the sector nervous.”

ESG focus

The WBD report also underlined the importance of Environmental Social Governance (ESG) for BTR developers. An overwhelming 98% of respondents emphasised its importance in shaping funding strategies.

In fact, almost all (95%) respondents state the need to balance profitability with creating tangible benefits for local communities.

Bela Zavery, Partner, Womble Bond Dickinson, added: “This approach not only enhances the quality of life for residents but also provides significant financial benefits for developers and investors. Nearly a quarter (23%) believe that delivering local value strengthens trust and long-term reputation, highlighting how investment in placemaking and community engagement helps to foster strong community support during the planning process. This in turn increases the ability to deliver both profitable and most importantly, viable projects.”

However, respondents pinpointed to key ESG challenges, including the high upfront costs of sustainable materials and technologies (39%), balancing sustainability goals with profitability (39%), and a limited availability of skilled contractors for green projects (38%).

Additionally, 34% identified regulatory uncertainties as a key challenge, highlighting the complexities BTR developers face in integrating sustainability while maintaining financial viability.

US lessons and learnings

The report also revealed some clear lessons for UK BTR from the more mature US market, with three quarters (75%) of developers and funders believing that the American rental market model provides valuable insights for UK investors.

One such area is the US zoning system. By creating different zones, managed at a local city and municipality level, each has their own pre-determined regulations on how the land can be used. This provides developers and funders with certainty, streamlining the development process.

Tom Willows explained: “As a transatlantic law firm, we were keen to see what UK BTR could learn from the States. Adopting something like the US zoning model in the UK could provide clarity for developers by involving communities in shaping long-term growth strategies.”

However, the report also highlights some warning signs for the UK market. According to WBD’s US team, the continuing growth of BTR has created a moral dilemma with large US institutions buying up developments and shrinking the market for individuals trying to buy their own homes.

Kenneth Van Winkle, Vice Chair, Womble Bond Dickinson US, explained: “We’re now seeing legislation being proposed in various cities, states and at a federal level to limit the number of homes that institutions can own, with some parts of the country also considering rent controls to make BTR less desirable and slow the market down. The UK is not at this stage yet, but this could be a warning of things to come for developers and investors.”

A full copy of the report can be downloaded here: Building Blocks: Unlocking the potential of UK Build-to-Rent.