Big money in­vestors to trans­form the let­tings mar­ket

Build-to-rent in­vestors are champ­ing at the bit, so what will hap­pen to the rental mar­ket when they get their teeth into it? Sharon Dale re­ports.

Yorkshire Post - Property - - PROPERTY -

OH how we laughed when The Young Ones burst onto our TV screens in the 1980s with their grotty stu­dent digs and their twofin­gered salute to hy­giene and house­work.

That kind of ac­com­mo­da­tion was the norm 30 years ago but, in re­al­ity, there was noth­ing funny about the damp and the dodgy electrics. Now, thanks to pur­pose-built blocks of flats, the stu­dent let­tings sec­tor has un­der­gone a trans­for­ma­tion.

Ten­ants have been se­duced by en-suite rooms with all mod cons and tra­di­tional land­lords have been forced to up their game and com­pete.

This build-to-rent model, funded by pri­vate in­vest­ment, has proved so suc­cess­ful in the stu­dent mar­ket, it looks set to spread.

Re­ports from Jones Lang LaSalle and Sav­ills this week re­veal that in­vest­ment funds and pri­vate eq­uity firms are clam­our­ing to buy or lease new blocks of flats to cre­ate pri­vate rented com­mu­ni­ties.

Th­ese are a com­mon as­set class in Amer­ica and in­vestors be­lieve there is a gap in the mar­ket in Bri­tain.

Guy Ack­ern­ley, of Jones Lang LaSalle, Leeds, says that Euro­pean and Amer­i­can op­er­a­tors are keen to en­ter the mar­ket, while 65 per cent of UK fund man­agers say they too want to in­vest.

Lon­don is a pre­ferred lo­ca­tion, though many are now look­ing out­side and have set their sights on key North­ern cities, in­clud­ing Manch­ester and Leeds. Oc­cu­pancy rates in Leeds city cen­tre are now 98 per cent and de­mand is grow­ing.

“The sale of Sky­line Cen­tral 2 in Manch­ester last sum­mer shows de­mand for stock mov­ing into the re­gions, due to the higher in­come re­turns and in­creas­ingly pos­i­tive prospects for cap­i­tal growth,” says Guy, who adds that in­vestors want blocks of 200 to 400 apart­ments with a re­turn of be­tween 5.5 and six per cent.

The main is­sue in York­shire, is a lack of stock. Ac­cord­ing to Jones Lang LaSalle, only one de­vel­op­ment, Calls Wharf, is due to start on site this year in Leeds, while Manch­ester has six new schemes un­der­way.

“Leeds can­not get left be­hind,” says Guy, who be­lieves that ex­ist­ing sites with plan­ning per­mis­sion need to be re­designed and de­vel­oped specif­i­cally for the rental mar­ket, with big­ger, bet­ter flats boast­ing more fa­cil­i­ties and stor­age.

The Sav­ills re­port agrees and gives clues on what to­day’s ten­ants want. The anal­y­sis, aimed at in­form­ing the emerg­ing build-to-rent sec­tor, stresses that qual­ity and lo­ca­tion are key to at­tract­ing and re­tain­ing ten­ants. It also high­lights an in­creas­ing need for fam­ily-sized homes.

The study shows that the de­sire for bet­ter ac­com­mo­da­tion fol­lowed by the need to re­lo­cate are the main rea­sons why ten­ants move. Al­most half of re­spon­dents said prox­im­ity to work and good pub­lic trans­port links are the most im­por­tant fac­tor when choos­ing a rental home.

The Sav­ills re­port goes on to com­bat fears that the boom­ing rental mar­ket may shrink now that prop­erty sales are im­prov­ing.

Lu­cian Cook, di­rec­tor of res­i­den­tial re­search, says: “We have seen a ten­ure shift to­wards pri­vate rent­ing. The size of the sec­tor has been in­creas­ing rapidly since the early 1990s.

There are now 4.14m peo­ple rent­ing pri­vately in Eng­land and we ex­pect that fig­ure to reach 5.7m by 2018. De­spite the rise in de­mand, the sup­ply of homes to rent re­mains con­strained, par­tic­u­larly in well-con­nected city cen­tres.”

A YouGov sur­vey for the prop­erty firm re­veals that in the 2011 Cen­sus, a third of renters were aged be­tween 25 and 34. They were closely fol­lowed by those aged be­tween 35 and 44. Th­ese older ten­ants are the fastest grow­ing seg­ment, which sug­gests that peo­ple are rent­ing for longer. While the ma­jor­ity of those who rent can­not buy, al­most a quar­ter of ten­ants choose to rent be­cause “it is less has­sle and they like the flex­i­bil­ity”. Sav­ills be­lieve that pur­pose-built blocks with good ameni­ties could tempt more peo­ple to rent as a life­style choice.

It sug­gests cre­at­ing more spa­cious ac­com­mo­da­tion and adds that blocks with nurs­ery pro­vi­sion and out­door play ar­eas may prove pop­u­lar with fam­i­lies.

Will Linley, co-founder of York­shire let­ting agency Linley and Simp­son, says it is early days for build-to-rent but adds that it could be a pos­i­tive force in the mar­ket.

“There is a short­age of pri­vate rented ac­com­mo­da­tion and I can’t see that chang­ing. A lot of peo­ple are now re­signed to not be­ing home­own­ers and the age of first time buy­ers is in­creas­ing, which means peo­ple are rent­ing for longer.

“If the build-to-rent ac­com­mo­da­tion is good qual­ity then it could put pres­sure on buyto-let land­lords to im­prove their prop­er­ties. That has hap­pened in the stu­dent mar­ket and is no bad thing.”

He adds that those think­ing of buy­ing to let shouldn’t be deterred by the new providers.

“They seem to be in­ter­ested in blocks of flats, which is fine, but we are see­ing real de­mand for fam­ily houses. If a prop­erty is in the right lo­ca­tion and is good qual­ity, you shouldn’t haven’t a prob­lem let­ting it.”

FULL OF LIGHT: The for­mer B&B is now a mag­nif­i­cent fam­ily home with a large south-fac­ing gar­den. The 23ft kitchen is a con­tem­po­rary con­trast to the Vic­to­rian prop­erty and boasts French doors lead­ing out onto the ter­race. Owner Sarah is an in­te­rior de­signer and owns Stitches soft fur­nish­ings.

SIGNS OF THE TIMES: Build-to-rent could im­prove stan­dards in the let­tings mar­ket as com­pe­ti­tion puts pres­sure on land­lords.

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