The growing demand for homes has brought about a range of different housing schemes in the UK, and one of the fastest growing trends in recent years has been the build-to-rent sector. Not only has this sector afforded many property owners, developers and investors with new opportunities, but it has also provided a more extensive offering to modern renters.
The Housing & Build-to-rent Conference on 13th January 2021, which was sponsored by Howard Kennedy, brought together industry experts to reflect on the changing nature of the sector, and predict what can be expected in 2021. Here, we discuss some of the key takeaways from the conference.
1. Planning
The Government has been under increasing pressure to grant planning permissions and variations to deliver more housing throughout the UK. The recently announced planning reforms will help with this, by aspiring for better architectural designs and quality place-making. While this may cost more at the application and construction phases, it will in turn lead to better tenant retention and competition for attractive living spaces. This will push market rent up which, over the months and years, will pay for the higher costs of design, and potentially retain tenants for longer. Although build-to-rent properties offer short term solutions for many tenants, better design and quality now means less maintenance and modernising needed in the long term, therefore saving money and keeping the units occupied.
However, planning does pose a number of challenges for the build-to-rent sector. Councils will likely be reluctant to revisit any historically granted planning permissions, even if they are alerted to the fact the viability of certain projects has changed, given the risk of opening the planning floodgates. If one change is permitted, many will want their planning permission changed too. Developers have more flexibility than councils in this way, as they are able to re-package an application and submit updated viability information, which ultimately paints a more realistic profit margin in today's market. Developers will therefore need to assess how much time is left on the expiry date for permissions to decide whether it is worth submitting a re-packaged application (that could potentially reveal better viability information and help realise the profit levels needed) or applying for new build-to-rent permission.
The build-to-rent sector is clearly growing and attracting more and more market share year-on-year, with investors putting more money behind build-to-rent proposals and the number of renters increasing. Councils will eventually have to respond to this and change their planning conventions, not only to keep up with the growth of the sector, but also because the Government will likely punish councils that fail to meet the housing targets implemented.
2. Change in consumer needs
One of the greatest impacts of the Covid-19 pandemic has been the transition from individuals working in offices in cities, to working from home. This shift has demonstrated to both employers and employees that companies can successfully operate remotely, and therefore it is likely that working from home will continue for many, even when lockdown restrictions have been lifted.
Working from home has also afforded many with a better balance between their working life and their personal life, and as such, what individuals require from their homes has changed. More space, such as a study or a spare room to work from, as well as a garden or some form of outdoor space to spend free time in, have become important features.
The Covid-19 pandemic has rapidly accelerated a change in consumer needs, and build-to-rent owners and developers will likely seek to take advantage of this change by introducing build-to-rent projects in suburban areas. Not only will suburban locations make it easier for developers to provide greater internal living space and more outdoor green space to renters, but it will also deliver build-to-rent properties to a much wider audience. Developers are already seeing an interest in suburban schemes from families who are looking to live more comfortably and create a better environment for their family dynamic.
It is important to highlight that, despite the introduction and growth of suburban developments, the demand for build-to-rent properties in cities will still remain high. However, given the uncertainty around how long Government measures will last, build-to-rent owners and developers will have to be more flexible and place greater consideration on ensuring buildings can comply with Covid-19 style guidelines in the future. For example, communal areas and resident facilities will need to be designed so that tenants can socially distance whilst still benefitting from their building's facilities. Developers who are forward thinking in this way will benefit the most, and no doubt thrive in the sector.
3. Investment interest remains strong
Despite the significant impact of Covid-19 on the property market, levels of investment in the build-to-rent sector have remained strong. The increase in demand for housing by families, the growth in the student housing market, and competitive interest rates have all contributed to investors continuing to seek out build-to-rent opportunities. Furthermore, although the majority of investment has been focused in London, there has been significant activity in other UK cities, such as Skyline II in Manchester, thus demonstrating the geographical scale of the growth in build-to-rent investment.
Despite lockdown restrictions remaining in force, and expected to remain in force for the coming months, the build-to-rent pipeline offers many investors further opportunities and, most importantly, confidence in this sector. As such, sentiment remains positive and it is likely that we will see high levels of build-to-rent investment continue throughout 2021.
4. Creating sustainable futures
Sustainability is fast becoming one of the biggest global concerns. Companies are increasingly placing a greater emphasis on corporate social responsibility to not only ensure they operate in a sustainable manner as a business, but that their products and services are sustainable too. The build-to-rent sector is no different, and owners, developers and investors are coming under increasing pressure to ensure they are providing zero carbon homes.
Buildings are being designed with a specific focus on energy efficiency. Tech features which help monitor how energy efficient a home is being run, the use of recycled materials and an awareness of bringing the outside in, are all elements which renters are looking for in new homes. Not only are these important for tenants' well-being, but also for rejuvenating the local area around build-to-rent developments. Those who are unable to meet these expanding sustainable standards will be left behind in the sector.
5. BTR tenants are a desirable demographic for landlords
The Covid-19 pandemic has resulted in a high rate of unemployment, and in turn, made rental payments extremely difficult for many tenants to meet on time. Although the Government issued a moratorium preventing landlords evicting tenants due to a failure to pay rent, the rent due is still payable rather than being written off completely.
Interestingly, despite the protection afforded by the moratorium, data has showed that delinquency rates for renters was relatively low, compared with other asset classes such as retail, offices and industrial. The build-to-rent concept was initially focused around the idea that if landlords provide the right services in the right way, tenants will respond by paying rent and maintaining their properties correctly. The high rate of rental collection throughout the Covid-19 pandemic illustrates this, and shows that not only do tenants place great importance on protecting where they live, but also that the build-to-rent sector can be a financially viable product for all parties involved, even in the face of a difficult economic climate.
The above takeaways illustrate that despite the economic challenges which currently exist, the build-to-rent sector is a strong one, with confidence and demand for build-to-rent properties remaining high. Given the sector is still relatively new, this paints a promising picture for its future. The constantly changing needs of individuals' offer regular opportunities for developers and investors, and a varied end rental product for consumers. It will be interesting to see how Government policies, in particular the planning reforms, operate against the backdrop of the Covid-19 pandemic, and how the build-to-rent sector responds in 2021.
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