BLOGS

A two-speed housing market is reshaping investor priorities

The UK housing market is currently telling two different stories at once. On the rental side, tenant demand remains resilient and pricing power sits firmly with landlords and operators. On the sales side, transaction activity looks choppier, with agreed sales swinging month to month and vendors increasingly having to concede on price to get deals over the line.

For institutional investors, lenders and developers, that divergence is not just an academic curiosity — it's a signal. Recent RICS Residential Market Survey rounds have repeatedly flagged rising new tenant enquiries against a backdrop of falling landlord instructions, a structural mismatch that has underpinned rental growth for several years. REalyse market data corroborates the direction of travel: rents are still climbing across the country, and the pipeline of new build-to-rent (BTR) stock is expanding to meet it.

The rental market: still climbing, still tight

REalyse listings data over the past 12 months shows achieved rents rising by roughly 5.7% year-on-year in London and by a striking 12.7% across the rest of the UK, even as asking rents in both regions have grown at a more moderate 4.2–4.4%. That gap — achieved rents growing faster than asking rents, particularly outside the capital — points to intense competition among tenants for available stock, with landlords able to secure premiums above the advertised price in many regional markets.

London remains the market's rental benchmark in absolute terms, with average asking rents around £3,056 per month against roughly £1,377 across the rest of the UK. But gross rental yields tell the inverse story: London yields average around 4.7%, compared with roughly 6.1% elsewhere in the UK, reflecting the capital's higher capital values relative to rent. For yield-focused investors, that differential is a key reason BTR capital has been fanning out beyond London into regional cities over the past two to three years.

Days on market for rental listings sit in a similar band nationally — around 37 days in London versus 40 days across the rest of the UK — suggesting stock is being absorbed quickly almost everywhere, not just in prime central locations. This is consistent with the RICS survey's persistent theme: landlord instructions have not kept pace with tenant demand, keeping upward pressure on rents even where affordability is increasingly stretched.

The sales market: liquid in parts, fragile in others

Set against that rental strength, REalyse sales listings and Land Registry-based transaction data over the past 24 months show a sales market that has struggled to build sustained momentum. New sales listings and agreed sales (sold subject to contract) volumes have fluctuated significantly month to month, with agreed sales ranging from roughly 12,000 to nearly 70,000 in a given month over the period — far more volatile than the steadier rental absorption trend.

More tellingly, the gap between asking and achieved sold prices has been widening. Average asking-to-sold discounts have drifted from close to flat in mid-2024 towards discounts of over 1% more recently, with the most recent months in the sample showing discounts above 1.2%. Average days on market for completed sales have also remained elevated, hovering in the high 80s to mid-90s across most of the period. Together, these point to a market where sellers are having to work harder — through pricing concessions and longer marketing periods — to convert interest into completed transactions.

This is precisely the environment that tends to sharpen the appeal of build-to-rent for institutional capital: an owner-occupier sales market where achieving full value is harder and slower, next to a rental market where demand is deep, absorption is fast and rent growth is compounding.

Where investor and developer activity is actually landing

The planning pipeline reflects this shift in appetite. REalyse planning data shows the number of BTR units in the pipeline growing steadily over the past three years, with London still the single largest concentration of BTR activity — several thousand units currently progressing through planning — but with meaningful and growing volumes now moving through the system in the North West, Yorkshire and the Humber, the South West, and Scotland.

That regional spread matters. It mirrors the yield story: London offers scale and liquidity but the lowest yields, while regional cities are increasingly where developers can combine strong rental demand, healthier gross yields (often in the 6%+ range per REalyse rental comparables), and more BTR-friendly planning environments. For lenders and developers assessing where to deploy capital, comparing local achieved rents, yield bands and the maturity of the BTR pipeline stage-by-stage — from applications through to schemes in construction — is becoming a standard part of site selection and underwriting.

Outlook: BTR as the structural beneficiary of a two-speed market

None of this suggests the sales market is in freefall — transaction volumes remain substantial and price discounts, while widening, are not dramatic in isolation. But the combination of resilient tenant demand, faster rent growth outside London, and a sales market that requires more price flexibility to transact is a favourable backdrop for BTR investment theses to keep gaining ground.

For institutional investors and developers, the near-term opportunity looks less like a single London growth story and more like a broadening regional one: identifying districts where rental yields, absorption speed and planning pipeline maturity align. As always, underwriting decisions should be grounded in granular, local comparables — asking and achieved rents, yields, and days on market by postcode district — rather than national averages alone, given how much variation exists beneath the headline UK figures.