UK homebuilder Berkeley targets rental market, raises 2025 outlook

Berkeley targets rental market: Berkeley lifted its earnings outlook for 2025 on Wednesday, the first FTSE 100 homebuilder to do so in more than two years, and said it would start a build-to-rent platform, amid robust demand for rental homes in London and South East England.

Shares in Berkeley, however, fell more than 3 per cent in morning trading, the top percentage loser on the blue-chip index.

"Investors were largely unmoved by the slight increase in guidance for the current financial year, although this may reflect a recent strong run for the shares and also the modest drop in margins and profit reported for the full year," AJ Bell analysts said in a note.

While the company expects a fall in 2025 pretax profit, it adjusted its forecast higher to 525 million pounds, citing "good enquiries" for homes in Britain's most under-supplied markets.

CEO Rob Perrins said the build-to-rent segment, to be developed over 10 years, was aimed at maximising its returns in current market conditions.The company did not specify how much it would invest in this project.

Sticky inflation in Britain had clouded the outlook for an easing of monetary policy, tempering expectations for a swift recovery in the housing market despite signs of stability at the start of 2024.

The group had identified about 4,000 homes across 17 brownfield regeneration sites, involving derelict or abandoned properties or buildings, as an initial portfolio for the platform.

Estate agency Savills earlier this year said that an additional one million rental homes were required by 2031 to address a growing national rental crisis.

"The build-to-rent platform... points to the significant potential in the private rental market," RBC Capital Markets analysts wrote in a note.

High-end builder Berkeley, which, unlike its bigger rivals, focuses on redeveloping land previously used for industrial purposes, said the current lack of urgency in the housing market was likely to remain until interest rates began to come down.

British inflation returned to its 2 per cent target in May for the first time in nearly three years, data showed on Wednesday, but underlying price pressures remained strong, meaning the Bank of England is likely to wait longer before cutting rates.

Berkeley, which operates across London, Birmingham, and the south of England, reported an 8 per cent fall in pretax profit to 557.3 million pounds ($708 million) for the year ended April 30.

That still exceeded the 549.5 million expected by analysts, LSEG data showed.