Build-to-rent: why the increasing interest?
19 November 2019
Build-to-rent is gaining momentum with institutional investors looking to balance out their portfolios. Why? It is seen by many institutional investors as a defensive asset.
While this may not be the asset class of choice for small- to mid-tier developers who may struggle with tying up capital for longer periods, those with larger balance sheets and institutional capital are happy to accept the 4-5% returns that build-to-rent yields.
Who are some of the large players currently looking at build-to-rent?
- QSuper recently acquired Trellis House, a build-to-rent development in Washington DC.
- Greystar and Macquarie Group currently have a joint venture in play to roll out build-to-rent apartments in the Asia Pacific region.
- Mirvac’s first build-to-rent asset in Australia will be Indigo Pavilions at Sydney Olympic Park which are now selling, with another to follow at Melbourne’s Queen Victoria Market.
- NAB has also recently pledged $2 billion towards build-to-rent affordable housing.
Why the peak in interest?
While build-to-rent is a well-known asset class for foreign investors, the domestic market is only just starting to get their heads around what it is and how it works. Where previously investors have had to look to overseas markets as local opportunities were not available, the new environment in Australia has become more appealing for investment.
There are two key elements at play here:
- Lower interest rates
- Untapped potential.
Lower interest rates mean that previous return hurdles associated with build-to-rent have changed and the return profile now makes sense in Australia. Super funds, for example, have started to look at build-to-rent as a lower risk investment. As return targets for super funds continue to change, the 4-5% returns for build-to-rent are suddenly starting to look more appealing. With lower interest rates, investors feel more comfortable with the asset class, particularly as it is comparable to the infrastructure asset class.
Furthermore, as there are very few defensive assets available to bid on or buy, both locally and globally, build-to-rent is an untapped asset class. This poses an opportunity for investors who are looking to take advantage of this asset class that has to date been heavily underdeveloped.
Want to learn more about build-to-rent?
BDO’s Real Estate and Construction specialists are attuned to the shifting trends affecting the industry. If you would like to learn more about the build-to-rent asset class, please contact a member of our team.