What is Build-to-rent and what does it mean for you as an investor?
If you’re reading this article there is a strong likelihood that you are a property investor, or you’re considering your first investment. You may have been drawn to property by the wish to produce a stable passive income, by the prospect of capital appreciation through rising prices, or perhaps your friends or family have encouraged you following their own successes. If that’s the case I have some good news … and some bad news. The good news is that the points above are all true. The bad news is that ‘The word is out.’
The number of households in the private rented sector in the UK increased from 2.8 million in 2007 to 4.5 million in 2017, an increase of 1.7 million in just 10 years.
In the world of investment that is quite a market signal. Institutional Investors such as pension funds, insurance groups, and trusts have now woken up to the fact that retail buy-to-let investors have been consistently securing 5%+ net returns and now they want in on the action! Due to this, a new term has entered the property vernacular – Build-To-Rent.
What is Build-to-Rent?
As the name suggests, Build-to-Rent is property that has been produced specifically to rent rather than for sale to owner occupiers. These developments are typically owned by a single entity and managed as a block. They are designed from inception to cater to the demands of rental tenants and often feature amenities such as gyms, residents lounges, and flexible working space. The apartments themselves vary between being fully residential in configuration to being smaller in size and with an emphasis placed on shared communal kitchen/dining and work space. Finally, the ‘landlords’ often provide benefits such as free wifi, concierge facilities, and even laundry services. The creation of an almost hotel like experience means BTR apartments often come at a rental market premium.
The Rise of Build-to-Rent
The sudden growth of BTR has been fuelled by demand from the rapidly growing rental market, and encouragement from the UK Government seeking to professionalise the rental sector and increase housing supply; the result is that more than £10bn has been invested in the UK’s BTR sector over the past five years. Figures from the British Property Federation indicate that investment into the sector has helped deliver in excess of 40,000 BTR homes with a further 110,000 BTR homes under construction or in planning stages.
BTR in Birmingham
Over the next ten years, Birmingham is set to experience one of the strongest increases in demand for rental accommodation outside of London. As such it is a hot-spot for build-to-rent investment.
Research by property consultants CBRE projects a growth of 10,000 rented households in Birmingham over the next ten years. According to the latest estimates, 21% of Birmingham’s households are private renters. This is forecast to rise to 26% in the next five years. The percentage of private renters in the city centre is significantly higher, currently accounting for 56% of households and forecast to rise to 63%.
CBRE have identified three main factors influencing greater demand for rental accommodation, including locations with higher percentage of population aged 25 to 34, high numbers of students, and the relative size of the economy. Birmingham scores highly in each of these areas. It is therefore unsurprising that of the 5,000 residential units currently under construction in Birmingham, around a third are build-to-rent.
What this means for you as an Investor
For those of you considering Birmingham as an investment location, there are a number of implications to the sudden growth of BTR in the marketplace:
1. Confirmation of the attractiveness of Birmingham as an investment destination
The projected growth in Birmingham rental demand is drawing professional institutional investors to the city. The BTR investors have the same objectives as many of our clients – to produce stable long term income. This vote of confidence in the city should offer great assurance in the buoyancy of the local market and the returns available.
2. A Reduced supply of Residential Property in the City Centre is an opportunity in itself.
A third of the units currently under construction in Birmingham are BTR. That means a third of the property supply is not going to be sold to owner occupiers. The systemic undersupply of property in the UK market may well be exacerbated by the sudden growth in demand from BTR. This represents an opportunity for those able to secure fully residential apartments in the city centre. With the population of Birmingham set to grow significantly, demand for residential apartments will rise. Our own JQ Rise development offers buyers the opportunity to purchase in a prime location at a time of increasing competition in the local market.
3. A Flight to Quality
The competition from Build-to-Rent providers in the rental market place means investors need to purchase high quality assets designed to cater for the expectations of the young professional tenant. The properties need to be exceptionally well located, well maintained, and well designed. This is something we at Prosperity have carefully considered. As a result we select prime sites and produce luxury apartments. The configuration of our two bedroom units is a good example of our consideration fo the end user. The 2 beds feature two equally sized fully double bedrooms and two en-suite bathrooms, meaning friends can live comfortably and evenly split the rent. As competition increases we are confident that our investors can depend on the quality offering Prosperity have provided.
Finally, the Prosperity group have their own in-house Letting and Management operation – Lamont & Co. We opted to build this sub-business to ensure quality control of the Letting experience for both investors and tenants. This means we have direct oversight on the maintenance of the buildings and apartments, offering high quality and reassurance to buyers.
It is Prosperity’s holistic approach, not just understanding the market but acting on that insight, that means our investors are well placed to capitalise on the exciting growth underway in Birmingham.