By Ian Barber, Managing Director, Ringley Group
Recent research into the UK’s Build to Rent sector reveals that investment soared past £2bn in the first half of 2021. An 80% increase in investment volumes compared to the same period in 2020 suggests that snowballing demand shows no signs of ceasing, with new entrants raising the stakes for existing investors seeking to deploy further capital in income-producing residential assets.
Build to Rent’s draw isn’t geographically concentrated, as the same study concluded that 70% of investment has been absorbed by schemes outside of London. Birmingham, Manchester, Liverpool, Leicester, Southampton, and Luton are just some of the regional cities under the magnifying glass, illustrating Build to Rent’s growing national reach. This is underpinned by a mix of funds originating within and outside of the UK, as real estate investors seek an alternative to offices and retail.
The ‘pile-in’ to the Build to Rent sector was initially accelerated by the Covid-19 pandemic, as global asset managers, pension funds, and sovereign wealth funds re-nosed their portfolios to hedge against collapsing values in vacant office and retail that was developmentally arrested by government restrictions. Cumulatively, Q3 2020 saw the greatest rise in completions in both London and the regions. By Q3 2020, sector totals broke 50,000 completed units – with over 80,000 units in planning.
Build to Rent totals in Q2 2021 are now 17% higher than in the same period last year. The primary drivers are as they always have been: liability matching, stabilisation by balancing occupancy with rental value, and a favourable gross-to-net leakage in yield underpinned by burgeoning demand; Build to Rent being structurally supported by an undersupply of rental housing in the UK, affordability and demographic shifts. The distinguishing feature now is differentiation, as Build to Rent is cleaved between mid-market developments that are often repurposed housebuilder or for-sale stock, and at the top end of the market we’re seeing more serviced and highly amenitised offerings where the buildings have been designed from the ground up for rent.
The target customer base for Build to Rent has evolved dramatically in that time. Once aimed mostly at young professionals and recent graduates in city centres, we’re now seeing more single-family schemes – houses built for rent rather than flats – and a growing interest in suburban Build to Rent that blends housing with mid to low rise apartment blocks.
Across the market there’s a race to vertical integration, as investors and operators link up to provide dual expertise and increase the value-add that now defines top tier Build to Rent.
What that looks like in practice is the steady embracing of technology to reduce operational expenditure. Build to Rent operators have developed their own consumer-facing app for customers that allows them to do everything from request repairs to organise social events with friends or other residents.
We’ve seen significant demand from residents across the country for quality Build to Rent apartments. In the summer we were appointed as leasing and managing agent for a £15m scheme in the Midlands. At the time of writing, we’ve successfully let 90%+ of the apartments, highlighting the continued demand for rental apartments in the region with similar numbers in the North West.
Our own operations technology platform, Busy Living, is sector-agnostic and can be used for any type of real estate asset where an investor needs to monetise space, market amenities, connect to the local area, and build a community through chat channels and neighbour-to-neighbour services. Occupiers are looking for an emphasis on amenity and robust management standards, the user experience being an aspect of Build to Rent that we’re constantly transforming.
Busy Living is one of the first systems to combine a plug-and-play cashless payment platform with biometric security features used by the Ministry of Defence. Security features include facial recognition and fingerprint scanning, which allow operators to grant access and manage spaces without 24-hour staffing, saving on costs. Busy Living can also be plugged into our new automated lettings app, PlanetRent, which automates chunks of the lettings process and streamlines the tenancy journey.
This empowers on-site staff such as concierges – who may come from a hospitality background rather than a property one – to draw up legally watertight tenancy agreements immediately after viewings, helping to speed up the leasing process and boost occupancy rates without cutting rents.
As the Build to Rent ‘gold rush’ continues to outpace other alternative asset classes, it’ll be the experiential side of the sector’s offering that generates a quantifiable premium. The horizon looks bright for the sector if developers, operators, and institutional investors continue to self-evaluate and transform in the way that they have.