Press Release
UK Multifamily Capital Values Stabilise as Rental Values Continue to Rise, According to CBRE
November 25, 2024
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UK Multifamily capital values rose by 0.4% in the six months to September 2024, according to the latest CBRE UK Multifamily Index results.
The rise in capital values was driven by rental value growth of 2.5% over this period. Gross income also increased by 4.2% in the six months to September, supported by a rise in occupancy rates. The average occupancy rate for schemes in the index was 96% in September 2024.
Capitalisation rates for assets in the Multifamily Index moved out slightly in the six months to September 2024, with an increase in the average capitalisation rate of just three basis points (bps). This compares to a rise of 20 bps in the six months to March 2024, suggesting that pricing pressures are starting to ease.
The stabilisation of yields and increase in capital values mirrors trends across the commercial real estate market this year. The CBRE UK monthly index reported capital value growth of 0.7% in the six months to September 2024 at an all-property level. This was underpinned by rental growth of 1.5%, with rental value increases recorded across the retail, office, and industrial sectors.
The latest results demonstrate that market conditions are gradually improving. As real estate investment recovers, the multifamily sector is well positioned to benefit given its attractive fundamentals, which have led to consistent income growth and high occupancy rates over the last few years.
The multifamily sector continues to perform well. Although capital growth was slightly below that for commercial real estate over the last six months, results for the last three years have shown that the multifamily sector is resilient in the face of challenging market conditions. Moreover, with capital waiting to be deployed into multifamily, and over £4bn of opportunities on the market, we expect investment volumes in the BtR market to grow in 2025, particularly as interest rates fall.
The private rental market is set to see further supply pressures from next year. The impending Renters Rights Bill and energy efficiency regulations both take steps to improve tenant experience but will provide additional cost to landlords that could force them to leave the market. However, this pressure is likely to be concentrated on small landlords, whereas modern Build-to-Rent stock is well positioned in relation to the upcoming regulatory requirements. Meanwhile, the recently introduced 2% stamp duty surcharge on second homes will act as further deterrent for small buy-to-let landlords looking to enter the market. This all points to constrained rental supply, which translates into strong fundamentals for the Build to Rent sector.
NOTE: The CBRE UK Multifamily Index was based on 64 assets comprising over 12,000 residential units as of September 2024. These assets had a combined capital value of £4.2bn at this date.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Dallas, is the world’s largest commercial real estate services and investment firm (based on 2024 revenue). The company has more than 140,000 employees (including Turner & Townsend employees) serving clients in more than 100 countries. CBRE serves a diverse range of clients with an integrated suite of services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.co.uk.