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‘Generation Rent’ as parents

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By Gemma Leonard


Published 07 June 2022


Gemma Leonard, Head of Residential at international law firm DAC Beachcroft considers how the build-to-rent (BTR) asset class is evolving with its customers.

Most of the burgeoning crop of BTR developments are aimed at the ‘young professional’ or ‘first homer’ demographics who are starting out on independent working life but do not have the resource – or desire – to buy their own property. However, one of the interesting questions around the emerging UK BTR sector is where does “Generation Rent” live when they become parents.

People have of course successfully raised children in high-rise apartments for decades but there will presumably be a significant proportion of these families who want some outside space and somewhere for the pram and a growing pile of bikes. Retaining customers is the lifeblood of service businesses so how will the BTR sector help ‘singletons’ in their transition to family life?

Research by Savills shows just how urban a phenomenon BTR currently is; less than 10% of current projects are taking place in suburban locations. The 25-34 year-old age group makes up 62% of residents in completed BTR projects (compared to 47% in the private rented sector), and this cohort predominantly lives in urban areas seeking higher paying jobs.

On this basis, it’s predictable that within the next five years a substantial number of BTR occupiers will transition to family life and may want a different configuration of home. And presumably this trend will become more accentuated as the BTR sector matures and delivers the huge level of planned development.

Not surprisingly, the Single Family Rental (SFR) sector is rapidly becoming talked about as the next destination for the kind of exceptional capital investment that the BTR sector is currently experiencing. Young families are the largest growing type of renter across the private rental market but their needs may not be met in the city centre locations where BTR is mostly proliferating. Single family homes need space and that can be at odds with prime urban land values.

In this context, Knight Frank believes that a wave of capital is heading for the UK’s burgeoning SFR accommodation, as investors look to diversify and grow their exposure to the private rental market. There are currently 2.3m privately renting households who live in suburban areas around the UK; while the majority of private renters (60%) already live in houses as opposed to flats.

Jonny Stevenson, Head of BTR at Knight Frank comments: “The opportunity for investors to deliver purpose-built Single Family Housing is clear. The investment fundamentals are strong. In recent years households aged 35+ have consistently been the fastest growing group of private renters. Such households usually require larger properties in less urban locations, often with a garden, and located close to local amenities and within reach of employment hubs. They also tend to be infrequent movers – given their ties to local schools, employment and support networks.”

However, the choice for renters may not need to be as binary as either an urban BTR scheme or a suburban SFR product.

Quintain was one of the early pioneers of BTR at its Wembley Park development and is now seeing occupiers transition through the homes that the scheme offers rather than simply depart for the suburbs. Danielle Bayless, COO of Quintain Living rejects an overly rigid view of occupiers and what they may want as their lives progress: “While the SFR sector will of course attract a certain audience, it would be an over-simplification to say that BTR is for people up to a certain age who will then move on to SFR.

“At Wembley Park, we have residents aged from 18 to 98, plus many children, so it’s fair to say that BTR has broad appeal. In the US, the term ‘renters by choice’ is often used to describe those who could buy a home but choose to rent because of the high level of service, amenity offerings, the flexibility and the maintenance-free lifestyle that today’s BTR product offers. We think that will be a growing demographic in the UK given the high-level quality the sector offers and rising home prices.”

Bayless highlights how schemes can happily accommodate differing demographics. Canada Gardens at Wembley Park is very much targeted at families, and provides larger apartments plus the amenities which “we know matter to parents” such as large open spaces, a kids’ play area, a nursery in the ground floor retail space and a bookable area for birthday parties.

She observes: “The key is to truly listen to your market, create amenity spaces for flexible uses, and to provide people with what they require at each stage of their lives.”

As a long-term provider across North American markets, Greystar is now leveraging that experience in the UK. Its Managing Director of Investment Management & Operations, Bella Peacock, comments: “We don’t design our product for a niche demographic as we have a very diverse resident base. However, we do look closely at the needs of our anticipated renters in each locality and think about how our likely residents will want to live. This ensures we provide the right amenities and create a community to suit the demographics of the building.

“People’s life situation changes over time and our portfolio should offer a range of product types and locations to suit each stage – from student and young professionals to families and downsizers. The consistent features are buildings which are purpose-designed for rental and the same high quality management and customer service.”

Of course, the debate around what sort of rental product should be provided is being played out against a backdrop of a chronic shortage of new homes – whatever their tenure is. Allsop Partner, Lesley Roberts, who specialises in the BTR sector comments: “The fact is that we need more rental accommodation across all property types. There are already huge numbers of renters in suburban locations across the country that are not being provided with accommodation that suits their needs or at a standard they should expect for their rental pound.

“This growing sector of the population is in desperate need of quality accommodation and a decent responsive and respectful landlord/management service.”

In this context, many supporters of the SFR sector believe that it does not needs to pivot on new development, but instead can focus on improving existing housing stock to create portfolios of investable assets.

IMMO Capital CIO, Samantha Kempe, observes: “It can take years to develop and generate returns from a BTR asset. Land must be secured, planning obtained, construction follows, then leasing – it’s a process that can take many years and requires a lot of upfront capital.

“Our approach to SFR today, in contrast, is speedy. One of the main reasons why institutional investors haven’t tapped into the SFR market in the past is the time it took to create a portfolio of single assets. Many countries, such as the UK or Germany, have lengthy, quite archaic buying procedures that have always made acquiring just one asset operationally intensive.

“Our technology has fundamentally changed the speed and ease at which portfolios can be built. We assess thousands of leads each week, using a combination of market intelligence and automated data processing, to identify those that offer both stable long-term yields and uplifts in valuation.”

Ultimately, the ability of providers to retain occupiers – and the income stream that they generate – looks like it will be pivotal in the battle to capture ‘cradle-to-grave’ market share.

Grainger plc currently has approaching 10,000 operational rental homes nationally and a £1.9bn investment pipeline which will see the number of homes it provides nearly double during the next few years. The company’s CEO, Helen Gordon, reports: “Our cluster strategy means we have different products, at different price points in a city or location, enabling customers to move if the need arises. Likewise, our national footprint means that a Grainger resident in London has the opportunity to relocate with us to most major cities across the country such as Manchester, Leeds, Bristol and Birmingham.

“We don’t expect our residents to stay with us forever. But, for however long they choose to rent, we are here to provide high quality homes, flexible terms and a smooth experience, enabling them to focus on the things that are most important to them at their current stage of life.”

DAC Beachcroft works with a wide range of BTR investors, developers and operators. Our work is illustrative of market dynamics as our own expertise expands with the market. We are seeing the initial investment of domestic developers transferred to international investors and more investors taking an interest in this market. Our modular experience is also important as MMC becomes part of BTR’s construction vocabulary.

BTR is relatively still in its infancy in the UK. Like the occupiers which it serves, the sector will have a raft of emerging requirements one of the most important will be the legal frameworks which govern its successful delivery and operation. From planning to development and an effective management regime, it’s a multi-layered process which requires bespoke legal structures and expert advice.