Build to rent bucks trend in the UK
The only major European cities to have poorer prospects than London as property investments for the year ahead are Istanbul, Athens and Moscow.
That was the shock finding of PricewaterhouseCoopers’ Emerging Trends in Europe real estate report, published this month, some four months after the UK’s decision to quit the European Union.
The report, which is based on the views of 800 senior property industry figures, has London fall ing out of the top 10 sought-after cities to 27th, out of 30.
The report did not make for positive reading for the United Kingdom’s other major cities either. Whereas Birmingham was ranked the sixth most attractive European city in January, it has now fallen to 22nd, with Manchester and Edinburgh following directly behind.
But there is one bright spark, amid the gloom. A recent survey of leading investors and developers by the property consultant JLL suggests that the momentum behind one particular asset class is undeterred as a result of Brexit.
Build to rent – or the private rented sector – is expected to becoming increasingly important next year. Since 2012 the government has been trying to promote the sector, having set up a £1 billion (Dh4.53bn) fund to kick-start build-to-rent projects. Around £15bn has already been invested in the sector and the estate agent Knight Frank estimates this will grow to nearer £50bn by 2020.
Jonathan Pitt, the national director of corporate PRS & Build to Rent at Hamptons International, meanwhile, says the sector is becoming increasingly attractive to large corporate investors.
“At Hamptons we have seen about 1,200 units come through in London in the last 18 months,” he tells The National.
“We have seen the big UK insurance companies, particularly Legal & General and Aberdeen Asset Management, put a lot of effort into build to rent and now we are also seeing big US companies, like Greystar, come here. Investors from Sweden, Germany and Canada, where the product is much more familiar, are also keen to invest.”
While there has been an assumption that the private rented sector will cater for those prevented from buying by high prices, experts say in fact, a new generation of lifelong renters is emerging who are choosing to rent even though they could afford to buy because it makes moving into a new home and community much easier.
Hamptons, which will soon begin marketing a Hermes-backed joint venture in Liverpool called Cargo, says it is seeing demand from families, as well as young professionals, and from downsizing or divorcing over-50s.
“It’s not just about affordability. What the build to rent sector is offering is whole blocks, owned by institutional or professional landlords, where people can live for years, knowing that they will receive a highly professional service and will not suddenly be asked to leave after six months because the landlord wants to sell up,” says Mr Pitt.
One of the biggest developers in this area is Delancey, the Qatari-backed owner of East Village, which owns all the apartments in the former Olympic Village at Stratford. Another new specialist is Essential Living, backed by US pension money and other investors, which has eight developments across the south-east of England and London and recently got permission to build more than 500 homes for rent in the capital’s North Acton.
Other developers are also bidding to attract tenants to their properties.
From the top of one such, called Vantage Point in North London, you can see The Shard, Canary Wharf, the London Eye and almost just below you the Emirates Stadium, the home of north London’s Arsenal Football Club.
Brandi Pollard, from Austen, Texas, moved into her apartment in Vantage Point just six weeks ago and is extremely happy with it. “It’s perfect for someone like me who is 34 and has just moved to London and does not know anyone here.
“I’ve always rented in buildings similar to this in the US and it has everything I need,” she tells The National. “I get to socialise with my neighbours and I have a ready-made community,” Ms Pollard says.
All tenants at Vantage Point sign up for at least a year and the block and its facilities are very much designed with long-term tenants in mind, rather than corporate lets.
Vantage Point, built by Essential Living, is at the top end of the build to rent spectrum, and has lured tenants from expensive parts of London such as nearby Highgate and Marylebone. One of its attractions are the impressive shared amenities: a drawing room with real fire and large flat-screen TV; a roof garden; gym; games room; and dining room/kitchen.
Rents range from £350 a week (Dh1,586) for a studio apartment, to £800 for a two-bedroom apartment. The penthouse flats are yet to be priced.
For their rent, tenants receive a full concierge service, use of the hotel-quality shared space, all utilities and Wi-Fi. Flats are furnished and the professional management company will even provide linen, should you need it. Of the 118 apartments that are in the building, 53 have been let since coming to market in September.
Many tenants in the building do not wish to buy a property, having grown used to the convenience and flexibility that comes with renting.
It is now estimated there are 20,000 to 50,000 build to rent units under construction in London and there are signs that capital is migrating north towards Manchester, in particular, as well as Birmingham, Leeds and Liverpool.
Jean-Marc Vandevivre recently left his role as the head of residential at British Land, one of the UK’s biggest property companies, to become the chief executive of PLATFORM_, a new company which focuses entirely on build to rent.
“The UK rental market today is worth around £1 trillion but only a small part of that is so far in the hands of institutions,” says Mr Vandevivre.
“With the number of renters only expected to keep growing, and many let down by the quality of accommodation and service they receive from the traditional private rented sector, there is a huge opportunity for institutional and other large-scale investors to step in and deliver a bespoke, professionally managed product,” he tells The National.
“The benefits [to investors] are obvious: by its very nature, build to rent is a defensive counter-cyclical asset class able to generate steady long-term income streams, and is far less volatile than commercial property.”
PLATFORM_, which was spun out of the global real estate developer Westrock, has chosen to develop apartment blocks in south-east English towns including Exeter, Bedford, Crawley, Stevenage and Bracknell to start with, where it expects to see steady demand.
So it seems there is, for some at least, a silver-lining to the post-referendum property cloud, which Ms Pollard says is not really surprising.
“If anything the Brexit decision probably pushes more people towards renting,” she says.
“People are scared to buy right now because they don’t know how things are going to go.”
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Updated: November 21, 2016 04:00 AM