Comment: While most recent rent collection figures for many sectors have made for disappointing reading, at 63% for retail, 82% for logistics and 90% for offices, according to a Q2 2020 CBRE report, residential rental incomes have remained resilient, averaging 96%.
The figures reflect the fact that over the lockdown period the one element of real estate we have been unable to do without is our homes. While investment in build-to-rent over the last quarter has stalled, CBRE’s data points to around £1.4bn of BTR deals under offer at present, making a rebound in investment in the sector likely in the second half of 2020.
The fundamentals for investment in the private rented sector remain attractive: the percentage of households living in rented accommodation in the UK has risen from 13% to 20% over the past 10 years, according to ONS data, and, while more institutions enter the BTR market, this is being offset by a reduction in supply from buy-to-let landlords who are leaving the sector because of unfavourable policy and growing costs. According to ARLA Propertymark, rental demand reached a record high of 88 prospective tenants per letting agency branch in January this year.
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Comment: While most recent rent collection figures for many sectors have made for disappointing reading, at 63% for retail, 82% for logistics and 90% for offices, according to a Q2 2020 CBRE report, residential rental incomes have remained resilient, averaging 96%.
The figures reflect the fact that over the lockdown period the one element of real estate we have been unable to do without is our homes. While investment in build-to-rent over the last quarter has stalled, CBRE’s data points to around £1.4bn of BTR deals under offer at present, making a rebound in investment in the sector likely in the second half of 2020.
The fundamentals for investment in the private rented sector remain attractive: the percentage of households living in rented accommodation in the UK has risen from 13% to 20% over the past 10 years, according to ONS data, and, while more institutions enter the BTR market, this is being offset by a reduction in supply from buy-to-let landlords who are leaving the sector because of unfavourable policy and growing costs. According to ARLA Propertymark, rental demand reached a record high of 88 prospective tenants per letting agency branch in January this year.
There is no doubt Covid-19 has brought about the most fundamental change in recent history in how we work, live and play. Various “lockdown surveys” are highlighting the importance of the quality of people’s residential accommodation and last week saw the announcement of a stamp duty holiday which, in theory, should make it easier for “Generation Rent” to become homeowners. So where does this leave BTR as an asset class?
The answer seems to be: in a pretty robust place, and not just in comparison to other sectors. There are several social and economic truths when it comes to BTR that are becoming ever more apparent in light of the pandemic.
Firstly, the number of households that rent will continue to grow. The stamp duty holiday might change the timing of when people decide to buy or what they can afford, but house prices remain circa eight times the average full-time salary and those struggling to buy will not suddenly be able to do so because of a maximum £15,000 saving.
There is also still a lack of mortgage availability as lenders adjust to new levels of risk, and particularly at the higher LTV range, which most first-time buyers need. Let’s not forget too that a six-month holiday will be very short lived.
The second fundamental truth is that affordability is only a small piece of the picture: renting is increasingly a lifestyle choice. Renters want flexibility, which has become even more vital with the uncertainty that Covid-19 has brought to job security and earnings. They also value the convenience of a rental environment which is “plug and play” in terms of internet connectivity, utility connections and furnishings.
Another undeniable positive that BTR schemes have going for them is the communal amenities they offer, which have become a lifeline for many in recent weeks. Although lockdown saw many communal areas forced to shut down, as restrictions ease, the demand for the shared workspaces, libraries and cafes that many BTR schemes provide will grow. This is not just borne out of convenience and the challenge of public transport either: we are increasingly witnessing the detrimental impact of isolation and home working on our mental health.
At our Green Rooms BTR scheme in Manchester, we have seen first-hand how the desire to feel part of a work “community” (even a small and transient one) is greater than ever because of the pandemic. We have also seen a rising demand for – and appreciation of – our social spaces and resident lounges which are geared for wellbeing and a community-led lifestyle.
In a post-Covid world, the BTR sector has a unique opportunity to do what it does best: listen to its residents, build communities and places that have people’s needs at their epicentre, and adapt to a whole new world and an unexpected raft of new requirements. We at AmroLiving are confident the sector will rise to this challenge and by doing so, BTR will become a mainstream institutional asset class.
Raj Kotecha is managing director of AmroLiving
