Build to rent could be healthiest post-Covid-19 property sector
As Covid-19 continues to wreak havoc across the globe, build to rent could become the asset class that is likely to recover quicker than other property types.
Natasha Sarkar, who specialises in build to rent for CBRE in New Zealand, says that in the US build to rent was the first sector to recover from the 2008 recession, and then achieved superior returns through the recovery and expansion phases. This could re-occur as economies slowly begin to open up after lockdowns.
Sarkar says: “In a post-Covid world build to rent is worth watching, as it is as an opportunity to diversify investment portfolios, especially as it is an asset class that has proven more resilient in the past than others.
“Though post-Covid results and their impact aren’t yet clear, we would assume that the strong fundamental growth within the build to rent sector in Australia and further afield will have remained strong throughout the pandemic and will help underpin and progress the interest in this sector.”
Sarkar says that the market in New Zealand needs scale, which translates to build to rent developments of 100 units or more.
“We’re starting to see circa 30 to 50-unit schemes; however, this scale doesn’t yet justify the service and amenity offering we need to move from traditional private rented stock to pure build to rent. Greater scale, perhaps even from multiple sites, will result in amenity and service driven schemes which is what we are after to make build to rent appeal to customers. Scale with a defined service/ amenity offering and strong equity backing, at least early on, is the current hurdle,” she says.
“High land values and build costs are constraints to most development in New Zealand cities, but accessibility to public transport and the ideology of homeownership as being the only long-term housing option for people, is also constraining us. Additionally, with the continuation of record low mortgage rates, the reality of a monthly mortgage payment closer to the cost of monthly rent, isn’t helping the overall rental story.”
For institutional investors however, there is a strong attraction to lock in stable returns from build to rent in the uncertain global environment, she adds. “People need somewhere to live. The constraints in New Zealand I believe are outweighed by a strong supply deficit of quality rental product, build to rent’s previous robustness and its track record in the US as the most resilient property sector to recessions.”
The appointment of Sarkar as CBRE’s director of structured transactions and advisory is part of the agency’s focus on the build to rent sector, leveraging her international experience.
Sarkar has been based in the UK for the past three years undertaking valuations and providing consultancy advice on large-scale residential-led developments and investments in London and the UK’s South East.
This experience has given her extensive knowledge about the opportunities and feasibility of build to rent – particularly as an emerging asset class. Additionally, she has direct New Zealand experience, having worked with CBRE New Zealand in the Valuations business for five years prior to heading to the UK.
Andrew Stringer, Senior Managing Director of CBRE NZ, said: “Build to rent is moving from its infancy to capture real interest within the New Zealand market, as it provides a significant opportunity to investors and developers, and it fulfils a critical need to increase rental housing within our main cities.”
He adds: “We haven’t seen largescale institutional grade build to rent within New Zealand yet, but build to rent is a well-established sector in the US and Germany. The UK has been exploring the concept for coming on a decade, gaining real momentum only in the last five years. New Zealand and Australia have both been making noises about this sector of the market since 2017, but Australia has made huge leaps in the last six months.”