The advent of 'generation rent' will see institutional investors buying into the private rental sector. The emergence of homes as an asset class will affect the way architects, designers and landscape professionals approach the design and specification of volume rental stock.
The advent of 'generation rent' will see institutional investors buying into the private rental sector.
The emergence of homes as an asset class will affect the way architects, designers and landscape professionals approach the design and specification of volume rental stock.
"The private rental sector is on the cusp of a massive shake-up, thanks to an influx of institutional investors."
"The imbalance between demand and supply makes this sector very attractive to 'super-landlords', who see the potential for increasing rental revenues and long-term capital growth."
"The future of the rental sector will be shaped by professionally managed rented housing, purposefully designed and built with the long-term occupier front of mind. Because these 'super-landlords' are in it for the long run, it is in their interest to build to a good standard."
Three years ago, the idea that a financial sector plc would fund the building of apartments in order to take revenue out of every stage of its development and ownership was a novel one.
Since then we've seen the mainstream breakthrough of the term 'build to rent' - as institutional developers seize the opportunity to own the land, grow equity in the property assets - and take the rental revenue too as a long-term income stream.
Since we first looked at the 'super landlord' phenomenon three years ago, the number of build-to-rent properties in the UK has more than doubled from 60,000 to 132,000.
The growth in the construction of apartment blocks by institutional investors, specifically for renting is up by a third compared with a year ago.
In recognition of this growth, in September 2018, the Ministry of Housing, Communities & Local Government published guidelines to enable Local Authorities to address their development within their planning systems. 'Build to Rent' is now defined in the National Planning Policy Framework Glossary as: "a distinct asset class within the private rented sector".
As a guide to the category's potential as an 'asset class', in 2017, the UK's build-to-rent market attracted £2.4bn in investment - and it's forecast to grow by a further 180% over the next six years. According to the British Property Foundation, in Q3 2018 there were 25,665 build to rent units completed, 41,870 under construction - and a further 64,320 with planning permission.
One interesting thing we've noticed is - beyond good quality accommodation - BTR properties are competing for potential tenants by offering 'hotel-like' lifestyle facilities such as gyms, pools, communal lounges, rooftop gardens and concierge services. All of which could help engender a greater sense of shared space and 'belonging' in our increasingly anonymous cities.
Communities as an asset class, anyone?
Given its potential rate of growth, you can see why pension giants Legal & General are jumping into the BTR market at both ends: funding tiny prefabricated single occupancy units, to the design and build of 10 major developments offering apartments up to three bedrooms. Indeed, they have ring-fenced £1billion for investment in build-to-rent.
As with any 'boom', though, you have to contemplate where the 'bust' might come from.
BTR investors are focusing on long-term income as greater proportion of their total return. As the sector matures, income will come under greater scrutiny, so a key issue could be the pace at which Institutional Investors can increase rents.
If the potential growth in income that these schemes deliver can't keep pace with their rising costs (and/or cover the risks of building stock from scratch), then it's feasible that the buy-to-rent phenomenon could run out of road.
There is evidence that, where rental control has been imposed, institutional investment in private rental stock has declined. Given that Labour's current manifesto commits to limiting rent rises to inflation, a change of government could change the game entirely.
One to watch, we think.