The Build-to-Rent story

The build-to-rent (BTR) sector is a relatively young sector but has gained momentum across the globe and continues to evolve.

A brief history of UK residential housing

In the UK for many years the main supplier of housing was the Local Authorities. Widespread development was stimulated in the post war years through legislation like the Housing Act of 1946, the New Towns Act of 1946 and the Town & Country Planning Act of 1947, which all encouraged publicly funded housebuilding. During the 1960’s and 1970’s much of this development took the form of high-rise blocks. At the start of the 1980’s there was a shift in policy to reduce government funding to Local Authorities, which significantly reduced their supply of stock. Despite housebuilding by Housing Associations increasing in the last two decades, it still represents less than 20% of completions. The supply of UK houses today is therefore hugely reliant upon the private sector.

Repositioning and recycling older public housing stock is now an important part of the residential market. Alongside this effort, the private sector is driving a new product which caters for a more affluent audience. The BTR opportunity first delivered the urban multifamily developments principally aimed at the young professional demographic. The multifamily product has recently been joined by the single family BTR developments.

The BTR market

BTR first emerged in the US. In barely 10 years, the US has witnessed the rapid rise of multifamily developments, often focused within cities, and more recently the single-family living developments in suburban locations. With capital flowing into the BTR market, the number of developments is growing across the continent, including secondary city locations. Ownership is increasingly institutional, including large real estate investors and REITs. Demand is still expected to be greater than supply as the quality of product and its accessibility are attractive to a broad age demographic.  The BTR product has very successfully crossed the Atlantic, with recent statistics published by the British Property Federation (BPF) noting a 14% increase in UK BTR homes (either in planning, construction or completed in 2022) compared to the prior year.

The BTR product

For the end-user residents the new BTR product has strong appeal owing to the following characteristics:

• Developments are professionally managed by an institutional landlord
• The product caters well for flexible living
• The product can be attractive to both younger residents and to seniors looking to downsize, whilst maintaining living standards
• The best products incorporate PropTech, enhancing resident experience and supporting efficient energy use and environmental credentials

The Coronavirus pandemic has made many people reassess the way they live. Remote working options have afforded greater flexibility on work/home proximity, there has been a greater awareness of the importance of access to green space and wellness facilities, and a general increasing desire for suburban living.

Greystar is the first vertically integrated build-to-rent platform in Europe and has 30 years of global experience investing, developing and operating high quality rental housing. They create purpose-designed buildings at scale for multifamily, young professional and student housing, investing in communities for the long term. Greystar has been active investors in the UK market since 2013 and now have a portfolio of nearly 11,000 rental homes. In addition, they have more than 35,000 student beds across their Chapter, Canvas and Student Roost brands.

Greystar’s Bella Peacock, Senior Managing Director – Asset Execution, Europe, spoke to Apex Group’s Simon Vardon:

Has it surprised you how mainstream the multifamily product has become in recent years?

It hasn’t surprised me. There is huge demand for high-quality rental housing and multifamily operators are well positioned to help meet this demand at scale and speed. We have seen a bit of a snowball effect with the positive impact of the first schemes and investors helping to lead the way for more people to enter the sector. Hopefully with the growing recognition of what multifamily can provide, this helps all parts of the delivery chain continue to evolve and refine to deliver better homes. While multifamily is now a lot more prevalent, there is still work to do in the planning approach and operational platforms, for example, to ensure that the product is understood and well serviced by the market.

Do you see the rise in single-family living as a competitor to the multifamily living product, or do you believe they can happily co-exist?

I think they can happily co-exist – multifamily rental and single-family rental meet the needs of different consumer groups for high-quality homes – thinking one will diminish the other assumes both that people all want to live in the same type of accommodation, and that there is enough supply. Having both options mean that people who rent out of choice or necessity can now pick homes that better meet their needs at that time.

Which markets are you now expecting to see the single-family product excel in? Is the concept and demand consistent in developed markets, or do you see regional nuances?

Ultimately the products will excel where they are meeting an identified demand, at a price point attractive to that consumer group.

Based on your experience, how critical is sustainability and ESG in delivering a successful product?

Sustainability is critical both in terms of delivering assets that are built to deliver value into the future, as well as assets that meet the expectations of our investors and residents alike. Increasingly, being able to demonstrate genuine, authentic ESG policies is important across all stages of a project and in running a business. Our people, partners and residents increasingly understand how their choices ‒ whether who they work for, where they live or what they do in their leisure time ‒ impact the community around them.

Do you believe we are seeing a structural shift away from homeownership to rental in markets where homeownership has been traditionally aspired to, like the US and UK?

There has been an increasing shift towards renting away from home ownership. While I think the desire for home ownership will endure, particularly in markets such as the UK, we are seeing structural shifts in family formation, working and career patterns and accommodation choices that mean more people are choosing to live in rental accommodation for longer. With this movement, they are now looking for different things from their homes beyond just the bricks and mortar.  Increasingly people are seeking service, convenience, community, amenities and flexibility, as well as knowing they have security in their choice of home.

In the past 12 months we have seen a very significant change in the economic landscape, with a rapid rise in interest rates and significant inflationary pressures. How has this impacted sentiment for the sector in the UK?

There is still an enduring undersupply of all types of housing and the change in economic conditions is likely to create further demand for rental. That means the market fundamentals are still there for investors, albeit they will approach with more caution which means working with the best partners. The challenge is around the delivery of buildings due to the impact on the debt market, but well-funded companies are in a position to navigate this and there will potentially be opportunities arising out of distress.