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BTR emerges as investors chase inflation-beating returns
Investors have begun to consider the build-to-rent sector as they pursue strong yields and consistently high demand outside of the traditional residential or commercial market.
While more investors have begun to question their residential investment strategies following the government’s recent budget changes, BTR has emerged as a viable opportunity for those with the capital to enter the market.
Cushman & Wakefield international director and head of living, APAC, Conal Newland, said that policy settings had led more institutional-scale investment to look at the asset type.
Newland said the increased demand had been underpinned by several of the key fundamentals for ongoing growth.
“Affordability constraints, population growth, smaller household formation and a long-running shortfall in new housing supply have all increased the need for professionally managed rental accommodation,” Newland said to SPI.
“At the same time, investors are looking for assets that can offer resilient income, inflation-linked rental growth and diversification away from other commercial real estate sectors.”
He said that the pivot into the BTR sector had proven an appealing move as investors target the essential assets with income that was in line with, if not ahead of, inflation.
Compared to traditional commercial sectors, Newland said BTR provided an income stream shaped by affordability trends and an entrenched demographic.
“This compares to other sectors that have seen structural reshaping – like the impact of online commerce on physical retail and work from home on offices,” he said.
“It also gives investors access to a sector that remains relatively immature in many APAC markets, which creates scope for growth and platform building.”
According to Newland, the most significant changes in BTR development were feasibility, scale, and operations.
To mitigate the impact of these obstacles, he said that new investors could partner with experienced operators and ensure they target locations with deep rental demand.
While the BTR sector was usually out of reach for the typical investor due to the level of capital required, Newland said that those with retail investments may be able to use diversified property funds or managed investment products.
“That said, access varies significantly by market, and in many APAC markets, BTR remains primarily an institutional investment sector rather than a mainstream retail investment option,” Newland said.
Newland said that institutional investors had been drawn to the residential living sectors despite challenging market conditions, with increased international capital flowing into these investments, particularly from Japan.
He said the flow of international capital into the nation’s housing market was a reflection of confidence in Australia’s long-term rental housing fundamentals.
“That tells you investors are looking beyond near-term volatility and focusing on structural themes such as housing undersupply, population growth, rental demand and the ongoing maturation of the Australian living sector,” Newland said.
Newland said that for BTR to achieve its full potential, the industry and government needed to collaborate to improve planning and create greater consistency.
“As Australia continues to confront housing affordability and supply challenges, Build-to-Rent will not be the sole answer. But it is rapidly becoming one of the most important pieces of the solution,” Newland said.
“The question is no longer whether institutional rental housing has a role to play. The question is whether Australia can deliver enough of it, quickly enough.”
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