The Daily Telegraph - Saturday - Money
Big investors force out DIY landlords
Small landlords are being forced out of the rental market by large property investors who poach tenants with the promise of flashy purpose-built flats.
The pandemic is exacerbating the trend, with businesses like John Lewis converting shops into high-end accommodation and even the City of London turning landlord.
The squeeze on traditional buy-tolet investors is particularly acute in the student market, where the purposebuilt sector is more mature, and is now being seen as a blueprint for how “build-to-rent” will hurt urban landlords over the longer term.
Daryl Tavernor, 32, a marketing consultant who owns a small buy-tolet portfolio in Stoke-on-Trent, has just sold a student let and quit the sector.
“We’ve seen universities and big investors building huge blocks of student flats and now you can’t compete with the flashiness. An 18-year-old can now get cleaners and gigabit internet,” said Mr Tavernor. “The days of students living packed into terraced houses are dead.”
He added: “We found it very hard to get tenants, they just didn’t seem to have much interest in the house when they could see nicer purpose- built blocks closer to the university.”
The threat is only getting bigger. Savills estate agents has forecast that a record number of new investor groups will enter the market in 2021. A record of nearly £6bn was invested in the sector in 2020, up 6pc on 2019.
James Kingdom, of JLL property advisers, said 22pc of all commercial real estate investment in 2020 was in the “living sector”, which includes purpose-built student accommodation
(PBSA). In the first three months of 2021, the share hit 36pc.
The pandemic has changed investment patterns. “Investors are looking to get out of commercial office and retail and into the living sector,” he said.
“The appetite from investors in the last 18 months has been massive,” added Mr Kingdom. “Private equity has been piling in.” In the first three months of this year, private equity accounted for 35pc of all PBSA investments. There are currently three students for every PBSA bed in Britain. “There’s the potential for that to go to 1.5,” said Mr Kingdom.
The displacement of student landlords can be seen as a prototype for how the growth of the wider build-torent sector could affect smaller private landlords in mainstream buy-to-lets.
Build- to- rent is currently much smaller than PBSA, but also hit an investment record in 2020, at £3.7bn, according to Knight Frank.
“What is driving build-to-rent is that a whole generation of students have gone through PBSA, and they are now growing the market for build-to-rent,” said Mr Kingdom.
America shows the scope for future growth, he added. There, institutionally owned properties are 12pc of rentals. Here, the share is closer to 1pc. The mass shift to homeworking also means that landowners are now planning to repurpose empty office and retail space. The City of London Corporation is planning to convert vacant offices into 1,500 homes, while John Lewis is planning to turn 20 of its stores into rental blocks.
Oliver Knight, of Knight Frank, said: “The potential for the build-to-rent and PBSA sectors to grow and take a bigger market share is huge, particularly as small-scale private landlords feel the pinch from increased taxation.”