Scottish locations with highest future rental demand revealed by CBRE research

Steven Newlands, head of investment at CBRE Scotland

New CBRE research has identified Aberdeen, Edinburgh and Glasgow as being among the top UK towns and cities outside London where multifamily, or build-to-rent (BTR), developments could increase due to growing demand for private rented accommodation over the next decade.

CBRE analysis identified three main factors that have a quantifiable impact on the private rented sector (PRS) in a given town or city – a high percentage of population aged 25 to 34, high numbers of students and the relative size of the economy. These findings were applied to forecasts to quantify the potential change over the next decade.

Aberdeen’s private rented sector is expected to increase by almost 5,000 households, meaning there will be almost 30,000 rented households in the city by 2028. With high projected rates of economic and employment growth, Edinburgh and Glasgow will remain in the top five largest rented sectors in the UK, with Edinburgh’s PRS expected to grow to 60,000 households and Glasgow to 70,000. More accommodation is needed to meet this demand.

Steven Newlands, head of investment at CBRE Scotland, said: “It’s no surprise that Edinburgh, Glasgow and Aberdeen are included on the list of UK cities where strongest demand for private rented accommodation is anticipated over the next ten years. All three have high numbers of students and 25 to 34-year-olds, two of the three main factors that influence greater requirement for rental accommodation. This source of talent and custom attracts employers and businesses to the cities, helping to drive a relatively high-performing economy – the third factor in strong rental demand.

“With the need for multifamily stock growing, we are already seeing heightened investment in this sector. Legal and General in particular has forward-funded two significant BTR schemes in Scotland – a 324-home development at Buchanan Wharf in Glasgow and a 338-home build at Leith Docks. As BTR becomes more established in Scotland, we expect interest from both UK and EMEA investors to increase.”

The percentage of households in privately rented accommodation in the UK has increased from 13% to 20% over the past decade according to ONS data, while the percentage of owner occupiers has declined.

CBRE has tracked over £10bn in investment into the UK’s multifamily sector over the past five years. The latest figures from BPF indicate that investment into the sector has helped deliver over 40,000 BTR homes, while a further 110,000 are under construction or in planning stages.

BTR homes are properties designed specifically for renters, which are owned and operated by a professional landlord. They typically have an on-site manager and offer other amenities and services for tenants. Around half of BTR homes are in London, but with regional towns and cities also attracting substantial investment, this balance could change, and a range of locations are set to benefit from the multifamily boom.

Scott Cabot, Associate Director, Research at CBRE said: “We excluded London from this analysis as we know there is already a substantial private rented sector and strong demand in the city, combined with a strong multifamily development pipeline. Instead, we focused on markets across the wider UK, looking at metrics for current demand, along with forecasts. This enabled us to identify the locations with the highest future demand, which could also attract significant multifamily investment.

“What is clear from our results is that there is a good geographical spread of potential future multifamily hotspots. These include cities with large PRS, like Birmingham and Manchester in England, and Glasgow and Edinburgh in Scotland. We also identified cities with large student populations like Nottingham, Belfast, Bristol and Coventry. People may decide to live in these cities after completing their studies, perhaps working in the growing tech and creative sectors, and will need a home to rent.

“Our research also identified cities where there is currently no multifamily development pipeline, but our indicators show there will be good levels of demand. For instance, Brighton, with its two universities, is one of CBRE’s top 10 creative cities, meaning it will attract future employers, and that there are healthy employment and economic growth forecasts underpinning the rental market.”

Peter Burns, Head of UK Development and Residential Capital Markets, CBRE said: “Multifamily investment over the last five years has been evenly split between London and main regional cities, and with the sector on a growth trajectory we expect further geographical diversification. Domestic investors have already made significant deals in regional cities, and as these destinations become more established, and more developments are operational and showing good returns, international investors are following suit.

“London has led the multifamily revolution so far, and while we expect continued strong performance in the capital, the challenge for new market entrants is to familiarize themselves with markets across the UK. This latest research, coupled with our local experts, helps us guide our clients on the opportunities nationwide.”

Following total investment of £2.4bn into UK multifamily in 2019, the outlook for 2020 is favourable. There is £1.5bn worth of deals currently under offer, illustrating the continued high demand for the sector. CBRE forecasts that total residential investment will increase by approximately 30% in 2020. Demand is being driven by an increasingly diverse investor base from both domestic and overseas institutions. In addition, a subdued sales market is set to persist in 2020, meaning multifamily will be the preferred disposal route for many developers.