Build to Rent: Purpose built for London

The popularity and success of Build to Rent in the capital is a significant opportunity for both lenders and developers, with factors distinct to London.

Embassy Boulevard Build to Rent scheme in Nine Elms, London - recently financed by Précis Capital Partners in partnership with Carlyle and Apollo | BTR News
Embassy Boulevard Build to Rent scheme in Nine Elms, London, recently financed by Précis Capital Partners in partnership with Carlyle and Apollo.

Build to Rent in the capital has exploded in recent years. Clearly, there are strong tailwinds powering demand which are not unique to London. These include a mutual and growing interest between investors and tenants in operationalisation, as well as government policies which have transformed regulations to incentivise institutional landlords over private landlords and simplified planning requirements.

By Randeesh Sandhu, Co-Founder and CEO, Précis Capital Partners

But there are also factors distinct to London which are spurring demand for Build to Rent developments. The city’s housing crisis is well documented, with London have consistently failed to meet its housebuilding target of at least 49,000 new homes a year. Build to Rent offers a vital new source of supply. In tandem with this, the success of pioneering Build to Rent schemes such as Quintain Living’s Wembley Park neighbourhood has reassured developers that demand for the model is such that the risk of high vacancy rates is low.

Build to Rent is also closely aligned with a widespread shift towards renting taking place across the city. By 2025, for the first time since the 1960s, renting is expected to overtake owner occupation as the most common form of housing in London. The asset class is innately well-suited to the capital’s demography, as the huge number of young, employed people and significant demand from overseas tenants looking for temporary lettings converges to bolster demand for rental properties.

Build to Rent is also a living class which appears particularly well suited to tackling some of the London housing market’s long-term social and economic challenges. Besides its role in counteracting the chronic undersupply of houses in a city of close to nine million people, discounted rental units also provide affordable price points for middle- and low-income households in an otherwise inflationary local market. A 467-home Build to Rent scheme in Nine Elms which we recently financed in partnership with Carlyle and Apollo, is a prime example of this, with the development including 30 Discounted Market Rent homes and 103 affordable rent homes.

The institutionalisation of the asset class also affords better protection for renters in a market which has historically been blighted by rogue private landlords failing to provide essential services for their tenants. In short, institutionalisation, by virtue of the significant investment involved and focus on providing a reliable, standardised product, drives up standards. For many Build to Rent developments, repairs on properties, a process previously fraught with delays and complications, are now being handled by dedicated smartphone apps which allow residents to report problems seamlessly.

These apps are also increasingly driving social engagement between tenants, and this is the other significant advantage Build to Rent has in a major city like London – the social benefit. Co-living facilities and amenities such as gardens, rooftops and gyms facilitate social mixing and community living. Emerging from two years of Covid-enforced isolation and separation, an experience felt particularly keenly in London, a city where community areas are often at a premium, these social spaces are essential to improving resident wellbeing.

The popularity and success of Build to Rent in the capital is a significant opportunity for both lenders and developers. Clearly, challenges do persist. Return expectations are often based on assumptions of rental growth which could be turned on their head by another exogeneous, Covid-style shock. The increasing space requirements and operational costs to deliver the managed amenities that renters increasingly expect eat into margins. The popularity of the asset class will inevitably lead to increased competition and the risk of oversupply. However, the underlying fundamentals remain extremely strong, with Build to Rent residential appearing purpose-built for a dynamic, fast-moving city characterised by unrelenting demand for high-quality housing.