What's next for the UK multifamily sector?

The UK government's pledge to deliver 1.5m homes during this parliament highlights the urgency of the national housing crisis, yet the development pipeline remains under intense pressure.

Higher financing costs, delays linked to Building Safety Regulator (BSR) Gateway processes and ongoing cost inflation have contributed to a significant slowdown in new construction starts over the past year.

Apartment-led build to rent (BTR) schemes, known as multifamily housing (MFH), offer an alternative to traditional build-to-sell homes, and the investment case is supported by low income volatility, defensive characteristics and sustained demand for rental homes.

Despite continued growth in the MFH market, it has not been immune to these challenges. Developers and investors are therefore adapting to an increasingly complex development landscape, alongside evolving macroeconomic factors that have shaped the wider real estate sector in recent years.

Moreover, new participants are still entering the MFH market: around 40% of operational deals since 2020 have involved first‑time entrants, which demonstrates confidence in the sector's long‑term prospects.

Overseas capital has played a major role in this growth, with nearly 60% of investment into MFH since 2020 coming from international sources; North American investors have been particularly active. 

Between 2024 and 2025, the number of operational multifamily apartments rose by 13% to just over 122,000 units nationally. However, increases in challenges to development viability last year saw investment in new schemes fall.

At the end of 2025, there were 38,500 homes under construction, down 8% from the previous year and far below the 2023 peak of 58,000.

By the end of 2026, Knight Frank forecasts that only around 16,000 new completions are expected. At the same time, more than 90,000 additional homes have planning permission, but the ability to convert approvals into new starts remains challenging.

Investors and developers are therefore reassessing their strategies and giving more careful consideration to the types of schemes they bring forward.

Targeting a mid‑market rent level unlocks access to a deeper part of the renter demand pool, which can make these schemes more resilient in this challenging economic climate.

Our data shows that major hubs such as London and Manchester continue to perform strongly, as well as growing activity in well‑connected regional towns and cities where demand is well‑established but supply remains limited.

Despite the challenging backdrop, the outlook for rental growth remains positive, supported by the structural supply-demand imbalance and moderate growth in supply.

But there are likely to be variations in the performance of these schemes depending on several factors, including location, asset characteristics and value. Our analysis shows that the moderation in rental growth over the past 12 months has been most pronounced at the top end of the market, for example.

Conversely, the mid-market and more affordable segments of the market have proven more resilient, underscoring the growing importance of value and price in sustaining demand.

Looking ahead, a positive outlook for rental growth for new lets should support income and demand from investors.

While there may be some short-term pressure on relets because of the Renters' Rights Act 2025, new rental supply remains tight, construction costs are elevated, and the wider, non-institutional private rented sector is contracting as many smaller landlords exit the sector. MFH is well positioned to benefit from this shift in market dynamics.

While rents are expected to see moderate, sustainable growth, this is only one side of the coin. Knight Frank's operational expenditure (OpEx) database reveals that operating costs have risen over the past few years – by nearly 20% since 2023 – largely driven by higher staffing, utilities and maintenance costs.

As a result, operational efficiency and effective asset management are playing a bigger role in overall returns.

Delivering a consistent, high-quality service and managing costs carefully, as well as ensuring the right on‑site model is in place, have all been key considerations for investors.

Even after a decade of growth, the UK remains significantly undersupplied with good-quality, purpose-built rental housing and the opportunity for more institutional investment is significant.

Our data suggests that MFH accounts for only 2.5% of total UK private rented sector households. Even a move towards 10% institutional ownership – which is still modest by global standards – would require nearly 500,000 additional units. We expect this structural gap to drive long‑term investor interest for years to come.

The next phase of multifamily development will depend on how effectively investors and developers respond to delivery challenges, evolving renter expectations and the shifting macroeconomic landscape.