BLOGS

The end of runaway rental growth?

For much of the past five years, build-to-rent investors have benefited from a structural imbalance: chronic undersupply meeting relentless demand. Double-digit annual rental increases became the norm in cities from Manchester to Edinburgh. But 2025 is telling a different story.

REalyse data tracking quarterly asking rents shows a clear deceleration. In London, year-on-year rental growth turned negative in Q2 2025, with asking rents falling 8.5% compared to the same period the previous year. The South East and West Midlands both recorded declines of around 2.7% during the same quarter. Even Scotland, which had posted growth above 7% earlier in 2025, saw that figure collapse to just 0.5% by Q3.

This isn't a blip. The median year-on-year rental change across the five largest regions is now sitting at around 3%—a far cry from the 8-12% annual increases recorded in 2022 and 2023.

A pipeline problem compounds the pressure

Softening rents alone might be manageable, but the timing coincides with a substantial wave of new BTR stock entering the market. REalyse planning data shows over 85,000 units currently under construction in London alone, with average scheme sizes now exceeding 1,700 units—significantly larger than the 318-unit average for completed schemes.

The North West has 123 completed BTR schemes totalling more than 31,000 units, with a further 18,000 units in the construction pipeline. The West Midlands counts around 15,800 units under construction across 25 schemes.

When this supply hits the market over the next 18-24 months, landlords in the most saturated submarkets may find themselves competing on incentives rather than headline rents. For operators whose underwriting assumed 4-5% annual rent escalation, flat or negative growth fundamentally changes the investment case.

Yield compression and regional divergence

The squeeze on rental income is particularly acute in London, where gross yields have compressed to between 4.6% and 4.7% across property types—well below the levels available in regional cities.

REalyse yield analysis shows Leeds flats delivering average gross yields of nearly 7%, with Manchester and Edinburgh both above 6%. Birmingham sits around 5.9%. For investors seeking income rather than capital growth, the arithmetic increasingly favours the regions.

This yield gap is driving capital rotation. Several major institutions have publicly shifted their acquisition focus away from the South East towards the Midlands and North, where entry prices are lower and rental growth—while moderating—remains in positive territory.

Tax and regulatory headwinds

Beyond market fundamentals, BTR faces a tougher policy environment. The Autumn 2024 Budget increased stamp duty surcharges for corporate buyers, adding 2 percentage points to acquisition costs for large-scale landlords. For a £200 million portfolio acquisition, this translates to an additional £4 million in upfront costs—capital that might otherwise have funded amenities or operational improvements.

Scotland's rent controls, introduced in 2022 and extended in modified form, continue to create uncertainty for investors operating north of the border. Although emergency caps have been relaxed, annual increases remain capped at CPI plus 1%, limiting landlords' ability to reset rents to market levels between tenancies.

In England, the Renters' Rights Bill—expected to reach the statute book in 2025—abolishes Section 21 "no-fault" evictions and introduces a new Decent Homes Standard for the private rented sector. While BTR operators generally welcome higher standards (which disadvantage amateur landlords), the legislation adds compliance costs and operational complexity.

What comes next for BTR?

None of this means build-to-rent is dead. Institutional capital remains committed to the sector, drawn by its defensive characteristics, inflation linkage, and the long-term structural demand story. But the era of easy growth is over.

Investors are likely to become more selective—focusing on locations with genuine supply constraints, strong employment anchors, and transport connectivity. Underwriting assumptions will need to reflect the new reality: rental growth closer to CPI than the double-digit figures of recent years.

For operators, the emphasis shifts from acquisition to asset management. Retention rates, operating efficiency, and service quality become the levers that differentiate winners from laggards. In a market where tenants have more choice, the landlords who deliver genuine value will command the premium rents.

REalyse data suggests the UK rental market is entering a new phase—one characterised by normalisation rather than correction. For investors who recalibrate expectations and focus on fundamentals, build-to-rent remains a compelling long-term proposition. But those still underwriting on 2022 assumptions may find the next few years uncomfortable.