Build to Rent ("BtR") is a relatively new phenomenon for the UK property market. Howard Kennedy's, Shreena Avery and Arnall Golden Gregory's, Steve Pepper, caught up with Michela Hancock, Managing Director of Greystar Europe, and Norman Radow, CEO of RADCO, to discuss opportunities, challenges and their experiences in both the UK and US BtR/Multi Family Housing markets. We've discussed below some of the key points which may be helpful to developers and investors entering into the world of BtR.
Is the UK ready for BtR?
The UK's attitude to BtR is worlds apart from the US and Europe; this was one of the key challenges that Michela Hancock said Greystar has certainly experienced in their quest to conquer the UK market. Traditionally, in the UK, buying your own home has been what most people strive to, a symbol of success. On the other hand, renting may have been seen as a waste of money or a stop gap whilst saving to buy your own property.
However, we are seeing a shift in attitude towards home ownership in the UK. The average age of first time buyers has increased to 34 (according to the comparison platform and information service Finder) as people decide to rent for longer rather than buy. The 35-49 age group has also overtaken the 25-34 year olds in being the largest group living in the private rented sector according to Knight Frank's research. The number of renters is also set to increase with Knight Frank projecting that the rental market will grow by 10% between 2020-2024. As the UK population increasingly comes around to renting long term, the BtR market can and should make the most of this change in attitude.
Knowing the market
Understanding the BtR market, is crucial to success. Those who have done well with BtR outside of the UK have recognised that it is not a "one size fits all" model; and a system that has worked in another country will need to be adjusted to fit the UK market. Greystar has attributed its ability to be adaptable as a key to the success they have had in the UK. Developers must be also willing to invest in people on the site to assist renters - after all, it is the people and experiences they are able to provide that really distinguish one BtR product from the others.
A big part of BtR are the amenities that are offered to occupiers. Renters are not just being given a flat to live in; their rent comes with other perks such as gyms, co-working spaces, roof terraces, as well as a social scene. BtR companies often offer a number of social events which their residents see as one of the main attractions – a feeling of community and togetherness. There may also be the added convenience of having a concierge, cleaners and handymen on site which is a real draw for those particularly with busy lifestyles . In order to crack the BtR market, developers and investors need to understand the amenities that appeal to their renters , what they are willing to pay a premium for and that they are selling a "lifestyle" rather than just an apartment.
Impact of coronavirus and the future of BtR
There are of course challenges posed by the coronavirus pandemic for BtR investors. The whole model is based on guaranteed rent for investors who are primarily interested in the income. This is where the class of renter becomes important. For those BtR providers in the UK whose schemes are aimed at higher earning individuals, delinquency rates have, on the whole, been relatively low, as the income of those renters living in a high quality and premium offering has been less impacted by the pandemic. Compare that with the US, where many schemes, aimed at lower income earners, have faced much higher delinquency rates . For example, RADCO has had roughly 11% delinquency on their cheaper units whereas Greystar, who offer a more premium product, has only seen approximately 2% delinquency across the board.
We are currently in the midst of another lockdown with the country facing stricter restrictions and these measures have clearly impacted BtR developers and highlighted how they have coped with the ever changing regulations. Overnight both communal areas and amenities have either had to close, or be repurposed and reconfigured to comply with Government guidelines. Social distancing measures have had to be put in place at relatively short notice and both Greystar and RADCO recognise the importance of acting quickly in these circumstances. Renters need to feel safe but also need to continue to be part of a community whether that be via virtual events or socially distanced outdoor gym classes. Michela in particular noted how having people on the ground at their sites and having established systems in place made this transition easier. In fact, it is the ability to act quickly and repurpose the amenity space that really sets the more established BtR developers, such as Greystar, apart from newer entrants to the market.
We have also seen a shift in renters' space requirements; with more people than ever working from home, the demand for 2 and 3 bedroom units has increased, whilst studios and one beds are no longer as popular as they once were. The good thing for BtR developers is that their renters are willing to pay that little bit extra for more space and better amenities and now more than ever, particularly given that for the majority of us, our home will also be our place of work.
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