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Why Build to Rent is thriving
The Build to Rent market has shown resilience throughout the pandemic and holds potential to meet resident needs for home-working environments and outdoor space. With this shift in priorities, the pressure to meet housing demand and soaring house prices, demand for Build to Rent is on the rise.
25 May 2021 | 6 min read
What is Build to Rent?
Build to Rent (BTR) is an emerging market within the private rented sector (PRS) providing professionally managed purpose-built rental housing. Appealing to investors, developers and residents, BTR developments stand out for their high-quality amenities, community-focused design and long-term returns.
Meeting housing demand
It’s estimated that the need for additional housing in the UK is between 232,000 and 300,000 units per year, a level not reached since the late 1970s[1]. On average, we only reach about half of this target each year.
The Housing Crisis can be attributed to many factors; popularity of home-owning, shortage of available land, planning constraints and scarcity of affordable housing, to name a few.
Housing shortage is so severe that it’s causing a change in lifestyle – some speculate that in the future more people will rent in the UK than own their own homes. It’s why investors are taking action and buying UK housing stock where house prices are soaring.
Particularly for younger age groups, the last decade has seen a shift away from home ownership in favour of private sector renting. Households aged 35-44 years in particular have seen a notable increase in private rented accommodation from 17% in 2009/2010 to 26% in 2019/2020, noted in the graph to the right from the Family Resources Survey[2].
Yet the 16-34-year-old demographic makes up the majority of private rented sector residents, generally young professionals seeking urban accommodation with accessible transport links to employment opportunities.
The average age of the first-time home buyer is still increasing in the UK as rental properties remain the only viable option for the majority of younger people. As it stands, the open sale market is not catering for the PRS demographic of younger age brackets seeking apartments in urban locations. Build to Rent developments present the opportunity to deliver more housing to meet a broader demographic and create more flexible options for local communities.
This flexibility comes from the range of options for both short-term and long-term lettings of varying tenures available within one community. A convenient process for both developers and residents, BTR property is favoured for its quick turnaround and lower initial costs to provide immediate housing.
Why Build to Rent appeals to investors and developers
Long term investment – With house prices and rent continuing to rise, Build to Rent schemes hold strong appeal for developers and investors due to its long-term benefit. Incoming rent coupled with the steadily increasing asset value helps BTR hit the mark for a non-volatile, high-quality investment with long-term returns.
Opportunities beyond London – PRS has demonstrated success in urban locations across the UK. Viability increases in areas with excellent local transport links, strong employment rates and competitive land values. With major infrastructure projects improving connectivity throughout the UK, we’ve seen BTR success extend beyond London to urban and sub-urban areas with competitive land values. Employment clusters around London are dispersing, with employers branching out of the capital to cities like Manchester and Birmingham. The concept of the “15-minute city” bodes well for BTR – the idea that every amenity a resident needs is accessible within 15 minutes by foot or bike. This can be achieved anywhere.
Speed to market - For multi-faceted regeneration sites, BTR can kick start the rate of return. Rental developments can be delivered faster than housing for sale as it does not risk market saturation in the same way. Adopting modern methods of construction, such as prefabrication and modularisation, can further facilitate speed to market, as seen in the world’s tallest modular skyscraper located in Croydon.
Technology - Smart buildings are the future of development - technology will certainly play a major role in achieving net zero carbon ambitions. Developers are already investing in digital infrastructure, with companies like Moda Living employing an Internet of Things multi-sensor that monitors space usage within their buildings, adjusts to the environment accordingly, and reduces energy consumption.
Why Build to Rent appeals to residents
Work, live and play under one roof – Marketed as beyond just a living space, Build to Rent homes appeal to residents for their modern and community-focused design. Aside from high-quality accommodation, BTR schemes offer lifestyle facilities such as gyms, restaurants, green spaces, workspaces and communal roof terraces. They’re often designed with the 15-minute city model in mind to create a community that has easy access to amenities, convenient affordable travel and fewer carbon emissions.
High-quality - The broad range of facilities are typically maintained to a high standard by building management. For investors, effective property management enhances and protects the long-term value of the development. And importantly, the maintenance of communal spaces and services creates a high-quality and desirable extended home for residents. Most developments have staff on-site on a 24-hour basis to offer security and support.
Flexible design – Attracting residents is crucial for BTR operators. Embedding a flexible design into each unit serves their best interest, but it also appeals to a wider demographic; young workers house sharing and families. With emphasis placed on developing an enduring asset, BTR designs are centred around modern and sustainable features, such as cooling systems. Manufacturing units off-site can allow for greater control over carbon usage, driving energy efficiency and contributing to net zero carbon targets.
Beyond the young professional demographic – The age bracket that has seen the most significant increase in private renting in the UK over the last decade are 35-44-year olds. Typically, BTR schemes target young professionals aged 25-34 seeking urban working and living space. But investors and developers are looking to tap into the family rental market. Investment manager Apache Capital has created a new business segment to develop, own and operate single-family rental homes. These schemes are largely sub-urban and developed for families aged between 30 and 45, a model already well established in the United States.
Why COVID has accelerated demand for Build to Rent
The pandemic has changed the way we view home. Covid is expected to accelerate lifestyle trends in favour of BTR as our home priorities evolve, with increased emphasis on wellbeing, access to outdoor space and the ability to work from home. And the unstable job market could encourage more people to choose renting over buying for their convenience, lower risk and initial costs.
With Covid having been a catalyst for working from home, many companies are looking to downsize their office space and move into flexible and agile working. This will likely see building uses change from retail and office space into residential accommodation.
This increase in home working has placed more emphasis on the need to have a dedicated workspace in home environments, something that BTR developments can factor into design. The shift away from the commuter lifestyle is also something that BTR can cater for, with most schemes in close proximity to both office and leisure amenities.
While the sector clearly flourishes in city centres and towns - and this is not expected to change - 2020 also saw sub-urban BTR schemes thrive. Working remotely has found us spending more time at home than usual so it’s unsurprising that families are seeking greater space both indoors and out, ditching the city environment for more green space. These sub-urban BTR schemes can excel by offering a vibrant community lifestyle that mirrors city-living but with lower costs and more space.
It's clear that the Build to Rent model holds appeal in both urban and rural contexts; offering high-spec city-centre apartments but also affordable sub-urban single-family houses. As we see sub-urban BTR schemes in the UK rise, we can expect to see the rental demographic broaden; presenting even more opportunity for developers and investors to meet housing demand with modern, desirable and sustainable homes.
References
[1] Housebuilding in the UK, Housing Supply – Historical Statistics for the UK, House of Commons Library briefing paper Tackling the under supply of housing in the UK, January 2021
[2] Family Resources Survey: Financial Year 2019 to 2020 https://www.gov.uk/government/statistics/family-resources-survey-financial-year-2019-to-2020/family-resources-survey-financial-year-2019-to-2020
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