Contents

• Key Points
• Another record year for SFH investment
• Why are investors targeting SFH?
• What impact can SFH have on national housing delivery?
• A shift to bespoke-designed SFH
• Institutional investment is raising design and sustainability standards
• High levels of rental growth have unlocked new markets for SFH investment
• Consistently strong rental demand in suburban markets
• Letting & Management strategies for SFH

Key Points

Another record year for SFH investment

In the past few years, SFH has cemented its place as a key segment in UK residential investment strategies. This trend accelerated in 2024, with £2.5 billion of investment into purpose-built homes for rent in suburban markets – the highest total on record.

Just over half (51%) of all UK Build to Rent (BTR) investment in 2024 was into SFH, with the other 49% going into urban Multifamily apartments. The rise of SFH has been rapid, given it represented just 5% of BTR investment on average between 2018 and 2022.

SFH also made up 6.3% of all UK real estate investment in 2024, up from only 0.9% just two years ago. This comes as part of a wider shift that has seen some investors rotate away from commercial asset classes such as offices and logistics, in favour of ESG strategies that include the Living sectors.

Increasing volumes of capital are being raised and deployed into SFH

SFH investment in 2024 came from a range of sources. Established players continued to grow their portfolios, with Lloyds Living (formerly Citra Living), Sigma Capital and Leaf Living purchasing over 5,000 homes between them throughout the course of the year.

New sources of capital have also been attracted to the UK SFH market, with some investors even making SFH their first foray into the wider UK residential investment space. In late 2024, Greykite purchased eleven sites in the Midlands, Yorkshire and the North East, from Persimmon Homes in a joint venture with the established Gatehouse Investment Management acting as asset manager. The partnership will target a range of housebuilders as it seeks to build a portfolio of 2,500 new homes with £750 million of investment.

Cross-border pension capital has also shown appetite for the sector. In late 2024, CPP Investments, the investment arm of the Canada Pension Plan, made an initial commitment of £500 million in a joint venture with Kennedy Wilson. National Pension Service of Korea (NPS) followed suit, with a £300 million commitment to seed a fund managed by Long Harbour, which has a target fund size of £1.6 billion. If successful, the fund will be Long Harbour’s largest closed-ended fund, which highlights the investment manager’s confidence in the long-term growth prospects of UK SFH.

More investment continues to come from existing UK Multifamily investors who are diversifying into suburban markets. Invesco, already invested in UK Multifamily, made their first SFH investment at the end of 2024, purchasing 99 homes at Beaulieu Park in Chelmsford from Hopkins Homes.

Other established UK Multifamily investors such as Hines, Pension Insurance Corporation and Patrizia all made public announcements of their plans to enter the UK SFH sector in 2024. Hines is targeting a portfolio of between £200 million and £500 million, while Pension Insurance Corporation is looking to deploy over £500 million. We expect to see more investors pursue investment strategies across both houses and apartments moving forward, as part of a diversified residential investment portfolio.

Why are investors targeting SFH?

UK SFH will become a key growth area moving forward as investors look to capitalise on the significant market opportunity and attractive investment characteristics of the sector.

What impact can SFH have on national housing delivery?

Rising investment into UK SFH suggests that the sector will make a growing contribution to total housing delivery in the coming years. But so far, the impact on national housing delivery has been modest and the UK is still not building enough homes for private rent.

The Private Rented Sector (PRS) makes up a fifth of households in England, according to the English Housing Survey. If we assume the number of homes delivered should reflect existing tenure distributions (i.e. a fifth should be delivered for the PRS), then over the past five years there was a requirement for 235,000 new-build PRS homes, of which 127,000 homes were needed in suburban markets (where 54% of UK renters live).

Demonstrating the scale of the supply shortfall, the SFH market delivered just 8,000 homes over that period. With lower levels of investment now coming from UK Buy-to-let investors, particularly those reliant on mortgage debt, SFH needs to play an increasingly important role in meeting the need for rented homes.

The UK Government aims to deliver over 1.5 million homes between 2030 and 2035 (300,000 homes per year), which taking the same notional 20% share to be delivered by the PRS, means an annual requirement for 60,000 private rented homes, of which 32,400 a year are needed in suburban markets.

The number of new home completions for private rent will increase as housebuilders become more comfortable with delivering homes for institutional investors. Housebuilders recognise that SFH can speed up delivery and offer a faster, more consistent absorption rate. Forward-selling parcels of SFH draws capital into sites earlier, helping to fund early land payments and community infrastructure such as schools.

This has led many housebuilders to restructure their business models and establish a partnership arm to work with investors to deliver fit-for-purpose rental homes. This shows a long-term commitment to SFH on the part of housebuilders, and recognition of the value of SFH to overall housing delivery.

A shift to bespoke-designed SFH

There is a high level of investor demand for purpose-built rental homes, but housebuilders need to be aware of the specific requirements of investors, who are increasingly looking for bespoke-designed SFH stock. This means homes that are specifically designed for the needs of the rental market, which often requires housebuilders to form a strategy at the pre-planning stage, to differentiate rental homes from homes for open market sale, and improve the viability of mixed tenure developments. Many housebuilders are implementing this strategy at the point of land acquisition, to assist with business planning and development viability.

Investors seeking to acquire rental schemes prioritise similar criteria to a private sale customer. This is because their tenants are likely to be in the homes for several years (or longer). Key criteria include good access to local infrastructure, schools and nearby amenities. The homes often look the same but are typically smaller unit typologies with greater sustainability features.

As the number of investors active in the market continues to grow, investment strategies are becoming increasingly diverse, with many investors seeking to differentiate their offerings. While larger SFH schemes of around 100 units remain a key focus, there has been a rise in transactions involving smaller schemes of approximately 40–50 units. However, these smaller developments are often incorporated into wider portfolios across multiple sites to achieve the scale necessary to attract investor interest. As outlined in our 2023 Single Family Housing Spotlight, some investors are also differentiating their strategies from a geographical perspective, with some looking to acquire in specific regions only.

The majority of operational and pipeline SFH schemes do not include high amounts of private amenitised space for residents, in contrast to Multifamily schemes which typically incorporate a resident’s gym and lounge area into the fabric of the building. This is down to the difference in the demographic requirements between city centre and suburban tenants. Suburban renters are often families who favour open spaces and play areas for their children. These features are usually already provided within new housing schemes for residents to use and therefore there is no requirement for investors to implement and manage the facilities directly in-house.

We do not anticipate that resident clubhouse-style amenities will become a standard feature across most suburban rental schemes in the UK in the near future, although some locations may support this model. The future of suburban rental amenities is likely to be shaped by factors such as location and development size, and so far we have seen a preference for smaller-scale amenities, including community centres that accommodate various activities throughout the day and evening, shared electric car clubs, and ‘Library of Things’ initiatives, where residents can borrow items such as garden tools.

Institutional investment is raising design and sustainability standards

Institutional investors have high sustainability requirements, which ideally need to be planned-in from the start of construction. From recent survey work and interviews, Savills has identified that sustainable features had already become a priority for many investors.

Electric Vehicle (EV) Charging Points and Air Source Heat Pumps are the most common, and some investors have stated these features must be included in their homes because of the green investment criteria of their funds. Some can only acquire sites which solely use electricity, not gas. Traditional housebuilders in the buy-to-sell market were rarely incentivised to go beyond minimum sustainability standards, as dictated by building regulations or planning policy.

But with the SFH market looking to attract and retain tenants and avoid potential longer-term retrofitting costs, sustainability features are now increasingly being factored in to the value of assets for investors.

By paying more today, the underlying asset can maintain its value or enjoy a premium over other assets that do not meet the same environmental standards and would require a cost to retrofit to meet investor criteria. With improved mandatory building regulation on the horizon in the shape of the Future Homes Standard, the gap between investor sustainability requirements and current build standards is set to reduce. Yet some investors will wish to go beyond the minimum energy performance standards, and there are a growing number of initiatives and design standards that can be implemented.

What are the options?

• The Future Homes Standard (FHS), set to be implemented in 2025, will form part of UK Building Regulations and will be the new minimum compliance standard for new homes. In practice, the FHS will mean improved building fabric performance and low-carbon, fossil fuel-free heating systems. It aims to future-proof homes so they will not require any energy-related retrofit as the national grid decarbonises. This is part of the broader effort to meet the UK's net-zero carbon targets by 2050. Exact details are still to be confirmed, but housebuilders should expect to have to include more insulation in the building fabric, heat pumps for heating and hot water and potentially rooftop solar panels. Whilst this is likely to mean higher build costs over the current regulatory minimum standard, the scale of technology adoption should reduce costs over time, particularly for the heat pump market.

• The Octopus Zero Bills model offers new homes equipped with solar panels, domestic scale batteries, and heat pumps, guaranteeing zero energy bills for at least five years. This innovative tariff leverages green technology to eliminate energy costs, making sustainable living more affordable. Octopus Energy aims to collaborate with developers to build 100,000 Zero Bills homes by 2030. Estimated additional costs are between £10,000–£20,000 per unit to fund the heat pump, batteries and PV panels.

• The Passivhaus standard is a rigorous, voluntary standard for environmental quality in buildings, providing assurance of health and wellbeing whilst reducing energy consumption. It results in high levels of internal comfort and constant fresh air, delivered using very little energy and therefore lower bills. Key features include high levels of insulation, airtight construction, and mechanical ventilation with heat recovery. Although some housebuilders state a 10–15% cost premium to build to Passivhaus standards, this is usually pricing in inexperience and risk, rather than additional materials and time on site. For developers who are used to building to Passivhaus standards, the premiums are more predictable and much lower, usually around the 5% mark and sometimes less than £10,000 per unit.

Regardless of whether the Octopus Zero Bills model or Passivhaus certification is used to go beyond minimum energy performance standards, it is clear that these will add costs, over and above the FHS from 2025. However, investors can expect returns from this additional investment in a number of ways.

Firstly, these properties will be cheaper to run. This will also attract tenants, and may also result in higher rents, over and above the energy savings alone. A growing number of Octopus Zero Bills homes are being launched by SFH investors, and early letting evidence suggests that the achieved rents are higher than standard house types. Homes that are cheaper to run are also likely to retain tenants for longer. Homes that use less energy will require less power from the national grid, meaning smaller and cheaper grid connections.

"Institutional investment, economic incentives, regulatory pressures, consumer demand, and technological advancements are all helping to drive improved sustainability standards in the New Homes market.

Soon, sustainable features will become more mainstream and form a ‘green foundation’ for the performance of new stock, with significant value added through sustainable design. High levels of internal comfort, community cohesion, placemaking and access to local amenities will all add significant value.

The good news here is that many of these things are free and come as a virtue of a good design process that focuses on the delivery of a sense of place for residents.

Whilst financial metrics, such as energy and rental costs, will clearly impact tenants' decisions on where to live, it’s also clear that the quality of a place will be a core factor. By embracing sustainable practices, institutional investors are not only enhancing the environmental performance of their properties but also creating long-term value."

High levels of rental growth have unlocked new markets for SFH investment

The SFH sector maintained momentum in 2024, with 1,400 more homes completed. There are now over 14,000 operational SFH homes, and a further 13,000 under construction. The greatest volume of completed homes remains in the North West, thanks to the early efforts of the PRS REIT, Gatehouse Bank and Placefirst. However, the arrival of new entrants and the broadening of geographies has meant that nearly 40% of Local Authorities in England and Wales have now had SFH brought forward as part of their housing delivery. Every UK region has now seen SFH delivery, with completed homes stretching from Cornwall to Newcastle and into Scotland.

The shift in investor focus has been supported by rental growth over the past few years. 99% of Local Authorities across Great Britain saw rents grow faster than house prices in the three years to August 2024. This has strengthened investor bids for homes, which has, in turn, helped to improve development viability for housebuilders when rents are growing faster than house prices.

Rising rental growth has unlocked new markets for SFH, with strong demand and solid investment fundamentals, particularly across the London commuter belt. In many Local Authorities, rents have increased at a faster pace than average house prices. This trend is evident in locations such as Cambridge and Oxford, long favoured by investors for their strong employment base, attractive demographics, and good rental affordability. Historically high house prices relative to rents meant that housebuilders could achieve higher margins by selling into the private for-sale market, making it difficult for investors to compete. However, with improved viability, more opportunities are now emerging in high-value markets where investors previously struggled to break even. A key example is Present Made’s 373-home Eddington scheme on the edge of Cambridge, which is set to become the largest suburban rental development in the UK.

Consistently strong rental demand in suburban markets

Demand for private rent remains high across the UK, particularly compared to pre-pandemic levels. In 2024, homes were letting faster than in 2019 in more than two-thirds (69%) of Local Authorities. This continues to drive rental growth, but the pattern has shifted somewhat over the course of 2024, as rental affordability constraints have started to moderate growth in some markets.

A consistent trend is evident across most UK core cities. Neighbouring Local Authorities, which tend to have lower housing density and a higher proportion of houses rather than flats, saw faster rental growth in 2024 than the central core city Local Authority. Only in Newcastle and Liverpool was the reverse true.

This pattern is particularly clear across Greater Manchester. In the 12 months to November 2024, rents in Manchester and Salford grew by 3.8% and 3.9%, respectively, while rents in more affordable boroughs such as Rochdale, Bolton and Wigan grew at more than twice this pace, each witnessing over 8% annual growth. A high proportion of SFH schemes in the North West are located outside Manchester’s city centre, and therefore have continued to experience strong growth in rents in 2024.

Looking ahead, we expect to see continued rental growth in suburban markets. This is for two reasons.

Firstly, supply remains constrained, particularly when compared to urban areas. The number of rental listings available per active letting branch in December 2024 remained 30% lower than the 2018–19 average in suburban markets. Urban markets have seen a greater recovery in available supply compared to the same period, with 10% fewer listings per active branch across London and 3% more listings available across urban areas outside the capital.

Secondly, suburban markets are often more affordable than city centres, and so there is greater headroom among tenants. In their latest results, the PRS REIT reported that their tenants spend 23% of their gross household income on rent, a lower proportion than both the 31.6% reported by the ONS for the North West region in the 2023 financial year and the 34% across England reported by the 2023/24 English Housing Survey.

Letting & Management Strategies for SFH

Savills Research spoke with Ascend Properties (Ascend) and Savills Property Management (Savills PM) to discuss leasing and operating BTR portfolios.

Savills PM manages over 3,500 BTR homes nationally. Ascend is the largest manager of SFH homes in the UK, with over 9,000 under management across 135+ developments, and over 1,500 new SFH homes in the pipeline for 2025. Including its multifamily BTR and BTL portfolios, Ascend currently manages over 10,500 homes throughout the UK.

Letting

The wide-ranging nature of SFH, in terms of location and tenant profile, means no two letting strategies are the same. Consideration is given to the specifics of the local market but there are some key themes that hold true for any scheme.

Q. What are the most important factors to consider in designing a lettings strategy?

All letting strategies carefully consider the balance between the pace of lettings and achieved rents. If rents are set too high then the scheme risks not reaching its stabilisation deadline (i.e. where it achieves target occupancy) and if rents are set too low the scheme lets quickly but does not achieve the best value for the client.

Q. Is there a different letting strategy for suburban homes compared to urban apartments?

The delivery process for houses and apartments differs significantly, and so does the letting strategy. Housing schemes are typically delivered in phases by housebuilders, with multiple homes handed over to the operator in bulk upon completion. In contrast, apartment buildings must reach full practical completion before a letting strategy can be implemented, resulting in a distinctly different approach to letting and occupancy management.

However, there are also similarities in strategies across all types of BTR. Time of year is an important factor, and in city centres, this closely aligns with the student letting season. The same period is important for SFH schemes, not because schemes are popular with students, but because of school term times, given the popularity of SFH schemes with families.

Q. How do you determine the size of the catchment and where tenants will come from?

Every scheme is different and the letting strategy is very much determined by local market dynamics. The most important consideration is where people work – proximity to local employment.

The suburban nature of schemes means that they often attract people moving out of an urban lifestyle and into the next stage of life with a partner or young family or starting a family. Schemes well-located on the edge of large towns and cities can cater well to this type of demand and give these tenants the extra space they need.

Q. Is professionally managed SFH becoming more recognised by renters?

A key attraction of SFH to renters is that it gives people the opportunity to live in a newly built home that has a high-quality design and finish that is only usually available to people who can afford to buy new build homes. When combined with a professional and responsive management approach, these schemes have been very popular with consumers if measured by speed of letting. Many tenants recognise that these homes are owned by a large company, providing them with greater stability and the assurance that they can stay for as long as they need.

Management

Q. How is performance measured?

Efficient operational performance is a key driver of SFH success. Investors with a deeper understanding of Operational Expenditure (Opex) will be able to drive returns and long-term portfolio performance.

“Gross to Net” (GtN) is the most common measure used, where the amount of rental income lost through operating, managing and maintaining a rental portfolio is calculated as a percentage of the gross rental income and deducted to arrive at a net rent. GtN can also be expressed on a “Cost per Unit” basis. This calculates the total income lost but averages the costs across the number of homes on a site.

A key attraction for investors into SFH is that running costs are lower than for Multifamily apartment buildings.

The day-to-day management of schemes is less intensive, with resources instead directed towards efficient portfolio management at a regional level. Regional cost variation can be mitigated with national coverage, achieved either through employing a third-party operator or developing an in-house platform. Doing so reduces reliance on local letting agents and contractors, which reduces cost fluctuations.

Q. Is there a link between operational efficiency and scale?

SFH offers the opportunity for investors to cluster sites and reduce management costs by minimising travel times for letting teams, management and contractors. In general, external maintenance teams will operate at a city, county or regional level, with activity managed centrally.

Q. What considerations do investors need to give to future refurbishment of homes?

Given the long-term, patient capital that is attracted to UK SFH, some investors are targeting multi-decade hold periods and will need to factor in numerous capital expenditure (capex) cycles. The nascency of the sector means most of the existing stock is less than ten years old and yet to go through its first round of capex, but investors can start planning for this now. The longer tenancy lengths of SFH compared to Multifamily mean that capex will likely take place less frequently, but there will be a greater capital outlay each time. The longer tenancy lengths also mean less rent lost through voids.

Q. What are some current and future tech solutions that can improve portfolio management?

Portfolio owners continue to invest in tech to support their management approach and their interaction with their customers. We expect this to become more common as portfolio sizes increase.

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