BTR Market Expands

The British Property Federation (BPF), a prominent voice of the UK's real estate industry, conducted a survey recently on the build-to-rent sector. The result of the survey meets the expectations and the predictions of the industry experts.

The Build-to-rent space is a sub-sector of the private rented sector and is what the UK institutional investors coin 'living sectors'. UK Build to Rent simply means stock purposely built and designed for rent in terms of design, lifestyle product offering, and operational efficiency. All living space sectors, of which PBSA's purpose-built student accommodation has attracted institutional investment since the 1980s, are now attracting huge interest. To housebuilders, UK Build to Rent is counter-cyclical but requires partnering up with an operator to take a development from PC to a stabilized asset, delaying the exit to say 1 to 2 years post PC.

To institutions, UK Build to Rent unlike say retail or office where you have to wait 5 years for a rent review, income is linked to wage price and retail inflation and is also counter-cyclical as when interest rates and high and inflation is rising unlike retail with fixed rents and defaulting tenants, the tenants in the Build to Rent sector (always called customers) still need somewhere to live snd will still be presented with inflationary rent rises. The imbalance that the Build to Rent sector is correcting is that what tenants want is changing, but the traditional rental stock has not.

The changing needs of modern tenants include work-from-home space designed in, Apps and digital channels to communicate with their landlord, social living, convenience such as post lockers often up front as a social hub, gyms, cinemas, clubrooms, and widescreen event spaces designed in.

At scale today, Build-to-rent developments include excellent amenities, easy access to vital services, developing infrastructure, and thriving locations. According to BPF, the build-to-rent investment market offers excellent potential gains, income growth, and high occupancy levels.

However, as Rickey knows only too well having designed its own proprietary tech with AI and machine learning included it is an NOI 'net operating income' business, where without a competent operating who is competent in not only lease-up and resident engagement, compliance, internal audit, and can drive income, total returns will be less than what they should be.

The BPF Survey Numbers

The Build-to-rent market shows an impressive 15 percent increase in the total number of purpose-built Build to Rent properties by the end of the second quarter of 2022. These properties include completed ones and those under construction and planning.

The number of units has increased from 209,313 to 240,202 during Q3 2021 and Q3 2022. The survey by BPF was conducted at the end of the third quarter of 2022. It revealed that while the build-to-rent sector continues to grow, there are signs of a slight slowdown, at least in the short term. While the number of home units available in the first three quarters of 2022 was 10,493, the figure for the same period in 2021 was 14,410.

Experts believe that the current inflationary burdens and shooting up of interest rates are responsible for creating a challenging environment across the UK, at least in the short term. This in addition to the fact that the whole built environment sector has been struggling with a reduced pool of labor post-Brexit and rising materials prices.

Positive Developments In The BTR Sector Continue

The good news is that the pipeline of build-to-rent homes indicates an impressive increase that will be delivered over the next decade. Currently, there are 113,536 homes in planning, up 15 percent year-on-year, pointing to excellent long-term prospects for the sector. A long-term prediction for Build-To-Rent homes foresees that around 380,000 BTR homes can be completed in the next ten years.

Build-to-Rent properties are offered with multiple amenities. These include on-site gymnasiums, opportunities for social activities, and even concierge services. Apart from creating more rental housing options, it also helps create a social living environment.

The new BPF survey results are the first available in years. The previous one, the Montague Review, commissioned some ten years ago by the then Housing Minister Grant Shapps, aimed to eliminate the obstacles to long-term institutional investment and nurture purpose-designed homes for rent. The government subsequently adopted the recommendations for including more support for BTR in local plans and national planning policy. It is said to have set the ball rolling for the development of the modern BTR sector.

The Montague Review was a significant moment that gave birth to the Build-to-Rent sector as we know it today, says Ian Fletcher, Director of policy at the British Property Federation. Ten years on, we can say the review achieved its core aim of unlocking long-term institutional investment into homes for rent, helping address the chronic shortage of quality housing in towns and cities, and serving as a catalyst for urban regeneration.

The current market conditions underline that we must continue to diversify the housing supply in order to drive economic growth, and the Government must continue to look at how planning reform, more support for local authorities, and the release of land for development can enable the sector to continue its upward trajectory.

A sum of 30 billion has been invested into the BTR sector until Quarter 3, 2022. It has helped in delivering 76,800 completed homes. The BPF survey states that there are 163,400 units in the planning and delivery stage. It may seem a small portion of the massive demand for new housing across the UK. However, the heartening factor is that the numbers are proliferating. The number of completed BTR homes has shown an impressive increase of 14 percent year-on-year in Quarter 3, 2022.

Ringley is a tech-enabled residential real estate-focused company that has a Client mindset and partners with investors looking to enter the UK living sector or to enhance the value of their assets. Headquartered in London with offices in Manchester and Cardiff with ~120 staff, Ringley’s UK-wide portfolio comprises over 13,000 homes of mixed tenures.

Drawing from decades of residential real estate experience, the business offers investors the same hassle-free approach BTR operators offer to consumers; by acting as a one-stop shop partner to those owning residential and living sector assets. Ringley’s partners include Curlew, Europa Capital, Gresham House, Rise, and PATRIZIA.

Ringley’s whole asset lifecycle expertise enables the business to see how design, technology, management, and operations can drive total returns and the long-term performance of investments from design, through project monitoring to stabilised assets, and, in preparing assets for exit.

As consumer choice pushes through to the capital markets ‘green loans and bonds’ rent and yields well-conceived stock that boasts high ESG credentials will demand price premia and distinguish performing assets to drive total returns. We look for opportunities and use tech to unlock additional value and consider ESG from the very outset by taking a fully integrated whole lifecycle approach.

The company specialises in devising and implementing vertically integrated tech-enabled operational strategies that are underpinned by proactive management of the asset, the facilities and leasing.