55% of PCL tenancies above £2,500 per week now involve properties owned by either build/own-to-rent investor-developers or professional investors, up from 20% five years ago

Agents are reporting the emergence of a burgeoning build/own-to-rent scene at the upper end of the London market.

An in-depth survey of tenancy data by boutique PCL firm Aston Chase suggests the sector has grown by 35% over the last five years, with a similar trajectory expected over the coming five.

Back in 2015, when the capital’s rental market was dominated by private and “accidental” landlords, just 20% of PCL tenancies above £2,500 per week involved properties owned by either build/own-to-rent investor-developers or professional investors; that figure has now risen to over half (55%), according to the analysis.

An example of a prime BTR scheme in St John’s Wood, Blenheim Terrace, delivered three 4,000-plus square foot townhouses with interiors by London-Miami designer Natalie Miyar

Much of the capital’s BTR stock has so far been geared towards the starter and lower-middle sectors of the lettings market, and concentrated in areas like Canary Wharf, Docklands, Wembley and South London, but professional players appear to be seeing an opportunity in the higher echelons – due to a range of factors including high transaction taxes, Brexit, a lack of supply, tempting returns, and rising demand from American, UK and EU tenants.

The prime build/own-to-rent sector is a very different animal to its mainstream counterpart, however, centring around top-notch locations like St John’s Wood, Marylebone, Regent’s Park, Little Venice, Hampstead, Primrose Hill, Belsize Park and Mayfair – and with tenants happy to pay anything up to £40k per week for best-in-class options.

Monaco and London firm REDD launched this newly-developed apartment in Mayfair onto the rental market in the Spring

Along with a market characterised by strong demand and low supply, the “relatively low cost” of purchasing a site and building a brand new purpose built rental property is attracting many investor-developers to the BTR sector, says Aston Chase.

According to the firm’s workings, an investor-developer after a 4,000 square foot house to let in St John’s Wood can buy a site and build something suitably impressive for £3m, rent out the resulting property at £4,000 pw, and clean up with a gross yield of 6.9%. To buy or do up an existing equivalent house could cost the investor-developer £6.26m, with the same level of rent generating a much less impressive yield of 3.3%.

These days, says the agency, the typical prime build/own-to-rent scheme is a bespoke project delivering less than 24 units, with many comprising of either individual properties or just a handful of luxury homes. Around 70% are let out unfurnished, with high-end tenants preferring to bring their own furniture, although hotel-style turnkey residences with full management services are proving increasingly popular.

Hotspots for these types of apartment schemes include Regent’s Park, Portland Place, Prince Albert Rd, Marylebone High St, Berkeley Square, Grosvenor Square, Bruton St and South Audley St; when it comes to houses, Carlton Hill, Clifton Hill, Marlborough Place and King Henry’s Road are all popular, with super-prime options concentrated on Hamilton Terrace, Avenue Road, Wadham Gardens, Acacia Road, Winnington Road, The Bishop’s Avenue and Ingram Avenue.

Americans are currently the most active international group in London’s prime rental sector, adds the report, accounting for 23% of lettings above £2,500 pw (and 50% in places like St John’s Wood), followed by those from continental Europe (22%), the Middle East (14%) and other-international (14%). Interestingly, domestic tenants now make up 27% of the market, a marked increase from just 15% five years ago, with stamp duty and political uncertainty the likely drivers.

Inside Criterion Capital’s recent rental scheme on Park Lane

Mark Pollack, Co-Founding Director of Aston Chase: “The Prime London build/own-to-rent sector is still in its infancy but has huge growth potential. Currently most build/own-to-rent stock provision has been in outer London and aimed at the starter and middle market, with the luxury sector largely overlooked until recently. It is the length of tenancy that build/own-to-rent investor-developers may be prepared to grant that could give them a strong advantage over privately owned rental property. Affluent ex-pats moving to Central London are typically looking to secure a property for up to three years which can be too much of a commitment for a private owner of a single residence who might be renting their home during a temporary change in circumstances.”

Ben Sloane, Lettings Director of Aston Chase:“Our Prime and Super Prime rental department is seeing the bulk of its activity mainly between £4,000 to £7,000 per week at the moment. St John’s Wood, Marylebone, Mayfair and Fitzrovia are still significantly undersupplied in terms of premium build/own-to-rent and property. There is a big demand for premium rental properties but a significant lack of good supply.”

Earlier this month, Hamptons reported that the nationwide proportion of homes let by “accidental landlords” – who previously tried to sell their property – had fallen for the first time in five years, as tax changes loom. Just one in fourteen (7.1%) of the homes that came onto the rental market this year were listed for sale within the previous six months, the lowest level since 2015.