Berkeley Group Holdings Plc (LON: BKG) is pioneering a strategic pivot towards the build-to-rent sector, marking a departure from its traditional homebuilding focus. Despite forecasting an 8% decline in pre-tax profit to GBP 557.3 million for 2025, the company raised its earnings outlook due to strong demand in underserved housing markets. CEO Rob Perrins views the build-to-rent initiative as a long-term solution to the UK's rental crisis, with plans to develop 4,000 homes across 17 brownfield sites over a decade. This move underscores Berkeley's commitment to sustainable development practices and positions it strategically amidst prevailing market challenges and economic uncertainties.
British home builder Berkeley Group Holdings Plc (LON: BKG) is making a strategic shift towards the growing rental market with the launch of a new "build-to-rent" platform. This move comes despite a slight dip in the company's overall profit for the year ended April 30, 2024.
Berkeley, known for its focus on redeveloping brownfield sites (previously used for industrial purposes), is the first FTSE 100 homebuilder to raise its earnings outlook for 2025 in over two years. While the company predicts an 8% fall in pre-tax profit to GBP 557.3 million (around USD 708 million) for 2025, it adjusted its forecast upwards due to "good enquiries" for homes in areas with a housing shortage. This revised forecast of GBP 525 million still exceeds analyst expectations of GBP 549.5 million.
CEO Rob Perrins sees the build-to-rent segment as a way to maximize returns in the current market. This program,planned for development over ten years, aims to address the significant national rental crisis. Estate agents like Savills estimate a need for an additional one million rental homes by 2031.
Unlike some larger rivals who may focus on greenfield development (undeveloped land), Berkeley focuses on redeveloping abandoned land rather than greenfield sites. This approach aligns with sustainable development practices by utilizing existing infrastructure. They have initially identified around 4,000 homes across 17 brownfield regeneration sites for their build-to-rent platform, representing a potentially significant initial investment.
Despite this strategic move, Berkeley acknowledges the current lack of urgency in the housing market. They believe this may persist until interest rates start falling. While inflation in Britain recently hit its 2% target for the first time in nearly three years in May 2024, underlying price pressures remain high. This could potentially delay interest rate cuts by the Bank of England, impacting the overall housing market.
Despite a slight dip in pre-tax profit, Berkeley's results exceeded analyst expectations. With a focus on build-to-rent and brownfield redevelopment, the company is positioning itself to address future market needs. This strategic shift could offer significant growth opportunities while contributing to solutions for the national rental shortage.
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