City investors are making a major land grab in the private rented sector (PRS) as the number of small buy-to-let landlords continues to shrink.
Property consultants JLL predict that over the next three years, the build-to-rent (BTR) sector will almost double in size and account for one-fifth of all new homes built in the UK.
This rise in purpose-built rental homes is being underwritten by large investors, such as asset managers and pension funds.
The move comes as BTL landlords are leaving the PRS because of increasing legislation and fast-rising interest rates that make BTL unprofitable.
And with estate agents Hamptons forecasting a net loss of 37,480 rental properties this year, there are also far-reaching consequences for tenants.
'Going to see a shift away from small landlords'
The associate director for living research at JLL, Emma Rosser said: "We are going to see a shift away from small landlords and that is going to be replaced with large landlords, the professionalisation of the sector."
She added: "This rising tide of investment has been building momentum over the last decade.
"We have come from a buy-to-let model where supply has really been built on debt.
"Now, it is going to be focused on equity. That is possible through very large, multi-billion pound pension funds.
"It all points to a big shift."
Institutional investors focusing on student accommodation
A decade of investment worth £32.5bn into the country’s BTR sector has led institutional investors to focus on building homes for young professionals and student accommodation.
Now, as smaller landlords decide to sell up, these investors are shifting their focus towards building suburban houses - the traditional domain of small-scale landlords.
The firms have deep pockets and aren't affected by ever-increasing borrowing costs.
Over the next three years, institutional investors will create 88,000 new PRS homes and JLL is predicting that by 2025, 42% of all build-to-rent homes will be single family houses - that's up from 13% today.
The real estate firm predicts that City investors will dominate the PRS - and make it difficult for smaller landlords who want to re-enter the market in future to do so.
'Corporate landlords are moving into the private rental sector'
Simon Thompson, the managing director of Accommodation for Students, said: "It shouldn't come as a surprise that corporate landlords are moving into the private rental sector - it has been happening for years in the student sector.
"These large, incorporated companies have many advantages over a small BTL investor including finance for building and investing, and the ability to borrow lots of money for their plans."
Mr Thompson added: "Highly leveraged investors have made a huge impact on the purpose-built student accommodation (PBSA) sector and they will buy up properties and even convert old office buildings.
"Essentially, the PBSA model is now moving into the PRS, and media commentators and landlords are only just realising.
"Things are going to get tougher for landlords who want to expand but are priced out of buying but tenants too will find that corporate investors will only be looking at young professionals and families with a good income to pay the rent.
"The unemployed or low-paid will increasingly find it hard to find a home to rent."
