Over the past couple of years, financial investment in the UK’s build-to-rent (BTR) sector has finally translated into the first generation of bespoke, professionally managed rental accommodation.
The total capital committed to the sector in 2017 broke the £2bn barrier for the first time and there are now more than 19,000 completed BTR units across the UK. But while the industry may rejoice that efforts are now coming to fruition, we can sometimes forget that, unlike us, tenants haven’t spent years talking about this new and exciting asset class. It is only now that they are experiencing BTR and we are getting feedback as to whether it is what the tenant wants.
The evidence in the market thus far points to a resounding ‘yes’. According to property data analyst Molior London, average absorption rates at BTR schemes in London have been well above the wider market. Our experience with operators who are active in key regional cities mirrors this. This is partly due to the lack of choice in the underlying market, and often the poor quality of existing stock – 40% of private rental property in the UK does not currently meet the government’s decent homes standards. In addition, 73% of stock is owned by buy-to-let landlords, who are not professional landlords and collectively have not helped the reputation of the sector. As such, there is considerable pent-up demand for high-quality accommodation and a professional management offering.
The sector is still in its infancy and as a result, there has been a focus on the prime end of the market. This has partly been driven by economics – to compete with the for-sale market and competitive land pricing, developers have focused on higher-value opportunities.
However, the provision of prime rental accommodation also reflects the sizeable demand for this product. Renters are not all just ‘the generation who can’t buy’. In London and around the UK, many renters are professionals who earn a decent salary and want to live in high-quality accommodation in vibrant areas that are close to work and amenities. There is a legitimate market for these tenants who are often willing to pay for additional lifestyle perks and convenience.
Clearly this doesn’t account for all 5.3 million renter households across the UK and indeed, a one-size-fits-all should never be the answer. But as BTR evolves, we will start to see much greater diversity, from product to price, as we seek to cater for more segments of the market. For example, over a third of (private) renter households are families, so identifying how best to cater for this market unlocks huge opportunity. In addition, we are learning about product features that are popular in the prime BTR market that can be replicated at a lower price point, such as the use of technology in communicating with landlords, a well-thought-out facility for deliveries and a strategy for move-ins. Ultimately, it is clear that investors and developers want to unlock the bigger opportunity, not just the prime opportunity.
With more than £30bn of global capital looking to invest in this sector across the UK, and developers often keen to de-risk larger schemes by introducing a BTR element, there is also a real opportunity for BTR to help address the housing shortage. It already has momentum: there are currently more than 27,500 BTR units under construction and a further 58,500 with planning consent.
So, while rooftop tennis courts and swimming pools might dominate the limelight – as they do in the for-sale market – the wider BTR sector is working hard to deliver much-needed accommodation for tenants who are looking for an affordable, quality property with a decent landlord.
By Helen Gray, Director, UK Development, CBRE.