Build to Rent (BTR) developments are exactly as they sound: purpose-built residential units designed to be rented out rather than sold. In most cases, these schemes usually offer longer tenancy terms and are managed by the owner or operator of the overall site. Whilst these schemes sit under the umbrella of the Private Rented Sector (PRS), they differ somewhat in that they are typically built and managed by institutional investors and property companies. This offers both long term returns for the investor, and generally higher security and overall quality of rental accommodation for the tenant. Research published by Knight Frank shows investments in this market hit £2.35 billion in the first half of 2021, a figure that is expected to be greatly surpassed in 2022.
The Build to Rent concept has only been strengthened throughout the pandemic, where residents' priorities have changed towards home working spaces and outdoor environments. As house prices have soared and the pressure to meet the demand for housing needs has increased, the demand for high-quality rental accommodation - and by extension, Build to Rent schemes - is on the rise. The average age of First Time Buyers in the UK is continuing to increase, as for many younger people, renting their first home(s) is the only economically viable option. BTR developers can create communities with both long and short term tenancies, providing high-quality housing for those unable to, or who do not want to purchase property outright. Young professionals are the prime target audience for developments with good access to business centres.
Developers - The Perks
Property investors are viewing BTR schemes as an attractive investment due to both the regular rental return, and the increasing value of their bricks and mortar asset. By extension, this provides an attractive asset for a dynamic property portfolio, also offering a quick return in a multi-faceted development.
Property investors are now able to invest outside of London (historically the main market), as PRS has demonstrated high levels of success throughout the country. Developers can, for instance, capitalise on the new travel links throughout the country such as HS2, developing strategic positions that will allow the target demographic to enjoy affordable, quality housing with access to the workplace.
Tenants - The Incentives
As a tenant, the delivery of high-quality housing within easy reach of amenities and transport links, as well as the promise of superior management (rather than what can otherwise be seen as an unreliable private landlord), provides an attractive package to a young professional or tenant looking for their own space. As the turnaround time for rental accommodation is a greatly more efficient process than that of purchase, the appeal is heightened for a job seeker, new professional or young couple looking for a speedy entry into their new home.
Schemes quite often also include communal amenities such as gyms and social spaces. Tenants are seemingly willing to pay over the odds for these luxuries, as well as a ready-made social life with the community ethos and purpose-built amenities: research shows on average BTR rates are 15% more than individual private tenancies.
Net Zero and The Future of Build to Rent
By 2025, the Government’s ‘Future Homes Standard’ is expected to come into effect in England as part of their commitment to reach net zero by 2050. This will mean that all new homes must meet the world-leading expectations of energy efficiency.
Developers are implementing more sustainable strategies within the construction stages of these projects, such as modular builds, cooling systems, and so on. These units can be manufactured off-site allowing for greater scrutiny and control over carbon usage, increasing energy efficiency both at the build stage and for future occupiers. This strategy is likely to displace the need for retrofit costs in the future. Being proactive with net zero expectations and obligations will give developers an asset that is both future proof and provides long term positive outcomes.
As mentioned, there appears to be a premium payable for BTR schemes, however, this hasn’t come as a detriment to the concept as yet, and with the added emphasis on environmentally conscious builds, surveys have shown that consumers are willing to pay a premium for sustainable goods, particularly within younger consumers (63% of consumers between 21 and 40 willing to pay a higher price for sustainable products according to YouGov).
Another expectation of BTR investment is to move away from traditional urban centres into suburban living, with a new target demographic of families. The need for suburban housing is still escalating, with the new hybrid working model generating a move towards the outer areas with functional workspace. Suburban BTR developments currently account for just over 10% of completed BTR homes, however this is anticipated to grow over the coming years. The units offer different tenures and amenities which are focused more around family life rather than that of a working younger person. They typically comprise houses rather than flats and focus on community infrastructure and proximity to schools rather than business districts. This forecast traction in suburban schemes will provide investors with the chance to extend the original demographic and tap into another market, also with a severe need for new homes.
CrowdProperty continues to innovate in the products we deliver and BTR aligns with many of the key themes foremost in our considerations such as modern methods of construction and sustainable development – both of which tie together and have been mentioned in our previous blogs. We look forward to bringing you more on this as our thinking evolves.
CrowdProperty has funded over £450,000,000 of property projects by SME property professionals, funding the development of more than 2,200 homes. This is still just the start of our mission to transform property finance to build more homes, increase spend in the UK economy and ever more efficiently and effectively match the supply and demand of capital for the benefit of all. Together we build a better future.
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