BTR Investment Retreats: Focus Returns to Core Cities

The Numbers Behind the Retreat

The geographic concentration is even more pronounced when examining current operational communities. The map above reveals BTR developments clustered heavily in London, Manchester, Birmingham, and Leeds, with significant gaps across much of England, particularly in the South West, East Anglia, and rural areas.

This concentration represents a significant shift from the more balanced geographic spread seen in earlier years, when regional opportunities were often more attractive than London due to lower land values and better yield profiles.

Why Investors Are Playing It Safe

Several factors are driving this geographic retreat:

• Risk Perception: International investors, particularly those from Abu Dhabi and other overseas markets, gravitate toward locations they recognise from financial media. As one roundtable participant noted: "If you're talking to somebody in Abu Dhabi about an investment and they're reading the Financial Times, they're not reading about Knowsley or Bromley—they're reading about London and the core cities."
  
  
• Economic Data Availability: Core cities benefit from readily available economic data, employment statistics, and market research that gives investors confidence. Smaller markets often lack this comprehensive data infrastructure.
  
  
• Valuation Shifts: While regional opportunities were previously more attractive due to lower land costs, rental growth across the country and changing valuation yields have made London more competitive again. "London is now a better bet for us," reported one major investor.
  
  
• Scale Requirements: Larger investment funds need substantial deployment opportunities that smaller markets simply can't provide at the required scale.

Operational Considerations

For operators, the geographic question ties closely to operational efficiency. A senior executive for a market-leading operator stated, "We're always looking at where it makes sense and where the economics work, but also diversifying our portfolio." However, this often leads to exploring "operational light" models in smaller cities—offering flexibility and key services but with reduced amenities and staffing.

This approach acknowledges that different geographies require different operational approaches, but it also risks creating a two-tier system where core cities get full-service BTR while secondary markets receive stripped-down versions.

The Policy Implications

From a government perspective, this geographic concentration presents challenges for the national housing strategy. With targets to build 1.5 million new homes across the country, the concentration of BTR investment in core cities could exacerbate regional housing imbalances.

"We welcome BTR as part of expanding the rental options available," noted the government representative, "but we need to see that choice available across different regions and price points."