11 January 2024
By Luke Lightfoot, Regional Director of Asset Management at Sigma Capital
As the fastest growing sub-sector in the UK rental market, it’s anticipated that build to rent (BtR) will continue to grow exponentially throughout 2024. In fact, the sector is set to expand by a significant figure of 11% year-on-year, according to the British Property Federation.
The third quarter of 2023 saw a record number of BtR homes under construction, with the sector continuing to bolster its reach, with 200 local authorities primed to deliver over 112,500 further BtR homes, according to figures from Savills. Single family housing (SFH), a rising area of the sector, now makes up 28,000 (11%) of all BtR homes.
With inflation continuing to rise, the BtR market is increasingly attractive for tenants. However, Luke Lightfoot argues that there is a huge need for careful strategy to be implemented here, rather than simply aiming to accelerate growth with minimal planning. By properly strategising, BtR landlords will not only be able to provide a brilliant service – but also meet the needs of increasing customer expectations. This is essential, as the demands of customers are fast expanding, alongside continuous rises in rental prices.
So, what will the build to rent market look like in 2024? And how can investors (both those with existing properties and those new to the industry) meet the rising demands of their customers?
Growing customer expectations as a response to rental costs
As inflation hits the entire housing market and supply continues to be squeezed, there’s no doubt that rent will continue to rise. As customers are faced with higher prices, they are expecting more bang for their buck – meaning the expectations on landlords have become much greater.
The challenge here is that, unlike multi family, SFH BtR teams often do not have boots on the ground at specific local sites to troubleshoot problems as and when they happen in homes. Therefore, the importance of an elevated service and transparent communication cannot be underestimated. SFH BtR landlords must have processes in place to manage tenant expectations – and this is where helpful technology can come into play. With the likes of dedicated maintenance systems and easy access via apps – tenants can quickly raise issues and receive automated progress updates. There are also options to implement a set fault tree, capable of pre prioritising common issues, capturing descriptions and signposting to where and how tenants can organise swift repairs, without a company representative or landlord actually being present.
Market complexity and fighting the good fight
As well as planning effectively for the individual success of projects – there is also the wider issue of preserving the reputation of the B2R sector. While trade bodies like the British Property Federation have set up build to rent committees to profile the sector and measure its impact, there is still a perception of ‘bad landlords’ that will continue to be fought in 2024, particularly with rising rents. Therefore, as an industry, BtR must push forward and continue to set standards for the rental market, particularly as rent control legislation and landlord licensing continues to be a growing threat.
Rent controls and landlord licensing are geared to benefit residents, protecting them from private landlords who may offer inflated rents for a sub-standard property and service. But this could be damaging for BtR landlords, who are continuing to improve and raise the standard of renting. This issue has the potential to go full circle and make BtR models less viable, contributing to the wider housing shortage that BtR has the potential to address, as seen in Scotland.
The most effective BtR strategies to use in 2024
- Know who you’re marketing to
To achieve large geographic scale, particularly in the SFH BTR sector, you need to know your audience. As we’ve seen, there is a trend for tenants wanting to move into a nice home with a garden and good schools nearby, rather than into a luxury city-centre apartment. Therefore, a mistake lots of investors coming into single-family housing are making is to focus on high-end amenities and mod cons. These essentially serve to alienate a large proportion of the market due to subsequently unattainable rents for the everyday person. If it’s achievable scale you’re after, then you need to be developing a product that can appeal to the masses.
- Seek partnerships
Stock plots are a great way to get into the single-family housing market. However, partnerships with housebuilders are the key to growth, unlocking access to larger sites. The challenge here is finding a housebuilder that understands the build to rent model, while making sure the partnership isn’t disjointed so a smooth process is achieved for residents, the investor, and the BtR provider alike. Whilst stock plots are a quicker entry into the market – to achieve more consistency, scale, and longevity in the SFH BtR market, you need to seek partnerships and framework agreements for upcoming sites. We have seen that a partnership approach is becoming more of a focus to many housebuilders, however changing that mindset, implementing new processes, and adopting influences from BtR landlords takes a long time to cement.
A challenging but bright future
With mortgage rates continuing to rise, it’s clear the demand for high standard rental properties isn’t going anywhere. However, the market isn’t immune from inflation, and costs will have to be passed to tenants, bringing increased expectations with them. To see real success from BtR, investors must open a transparent line of communication with their tenants. They must invest in technology and people on the ground to meet their needs, and be able to provide an exceptional service.
It’s clear that there is an abundance of opportunities in BtR – and the sector will only continue to grow. But that doesn’t mean the sector will be without its challenges going into 2024. Ultimately, the landlords who prioritise collaborative partnerships, transparent lines of communication, and taking the time to understand their audience are the ones that will become the big winners.
References
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Simple Life Renewal Surveys, Jun 22-Jun 23
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Uk Government via Statista
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ONS
