According to recent research (Feb 2018) from Savills the UK’s Build to Rent (BtR) sector continues to progress rapidly, with c. 104,500 units currently in the sector including 19,000 completed, 27,500 under construction, and c. 58,000 in the pipeline. Given the major shortfalls in the UK’s housing stock, the sector offers substantial potential for medium to long term investment.
What are some of the current challenges facing Build to Rent?
A Nascent Sector in its initial growth stages..
Whilst the US has a very established Multi-Family Housing sector, the equivalent BtR sector is relatively new in the UK. The lack of data on mature assets creates an additional element of risk for investors and developers. The only long-term data available is from the Buy-to-Let sector, which is rather fragmented, and tends to have different investment characteristics from purpose-built BtR assets.
The existing planning framework..
Currently planning guidelines and regulations for BtR developments are mainly based on the C3 (residential) use class that is associated with all new developments in the residential sector which includes the For-Sale sector. There are significant differences in the design and the delivery of housing in the BtR and For-Sale sectors that current regulations do not recognize. As a result, the lack of flexibility on such parameters such as unit mix, space standards, design, and parking could hamper the growth of the BtR sector. The draft New London Plan attempts to recognise some of these differences that should ultimately follow through into national planning policy.
BtR’s operating costs…
A fully managed building is one of the key features of BtR schemes. It is expected that as the sector becomes established, assets with good quality, hands-on management will trade at lower yields than those that do not have a good management strategy. US experience illustrates the sensitivity of long term yields to management/ operating costs, and it is crucial that we recognise this from the outset in the UK and ensure that our assets have built-in efficiencies from very initial design stages.
Please come back to peruse next month’s article on Building in design efficiencies…