Build to rent is finally blossoming, with more than 60,000 units in the pipeline, according to the British Property Federation.
But as the first purpose-built schemes come out of the ground, are investors ready to actually operate consumer-facing assets?
From a LaSalle Investment Management perspective, “unequivocally yes,” says Andrew Stanford, regional director and former head of the government’s PRS taskforce.
“The prospect of direct management is daunting to some, however, many in the industry have years of experience managing assets in the UK, or elsewhere such as Germany or the US, and while build to rent in the UK will have its nuances, you can buy in that knowledge if you know what to look for.”
During RESI’s decade-long existence, talk of a revolution in the private rented sector has often been criticised for being just that. But while many of the loudest talkers are yet to set a spade in the ground, thousands of homes are now being built for rent by a diverse mix of investors and developers.
Industry stalwarts like LaSalle, Grainger and M&G; upstarts like HUB and Fizzy Living; all-in-one platforms like Essential Living, Westrock and Moda Living underline an array of different routes being taken to market.
Many purpose-built developments are fast approaching the finishing line. Once completed, the big question facing all investors will be how they will be managed. Keeping operating costs low will be crucial to reducing those all-important gross-to-net differentials. But maintaining service-levels will equally be vital to retain tenants, drive revenue streams and inflate valuations.
According to Essential Living’s operations director, Ian Merrick, it’s a question that ideally has to be asked at design stage.
“The more practical a building is, the less you spend on maintenance, which lowers costs and increases customer satisfaction,” he says.
Jordan Perlman, co-founder of Newground Architects, the boutique architecture practice behind two of London’s biggest build to rent schemes agrees.
Perlman says that considering the operational use was key in designing the Material Store in Hayes, a HUB development forward-funded by Fizzy Living, and M&G’s Rehearsal Rooms in Acton.
“Having areas where people can socialise, make friends and feel like they live in a genuine community is essential if they are stay over the long run,” he says.
But amenities like this pose their own management issues, and the extent to which they add value to a development has yet to be determined. Gyms and swimming pools, practically standard in the well-established US multifamily sector, are less widespread here in the UK.
“While there is a lot to learn from US multifamily housing, we shouldn’t be blindly copying everything,” says Alexandra Notay, policy director at the Urban Land Institute UK.
“The US multifamily sector is 25-30 years ahead of us and we are just getting going, so while it’s easy to get distracted, pet spas and golf simulators are not the priorities right now!”
Emerging technology will also play a key role in driving both service and cost savings. Smart meters, keyless entry and app-base fault reporting are some of things that will soon become standard.
LIV, the specialist build to rent management operator, is creating an app available to LIV clients on a white-label basis that will allow residents access services and amenities in every building.
“The age profile of the typical PRS resident means that they are responsive to smart technology and this is now a critical part of an integrated management approach”, says Graham Bates, chief executive of LIV, which is already working with AIG, Moda Living and Westrock.
“The emergence of the ‘Internet of Things’ could allow forward-thinking landlords to save money in greater sums than now.”
But beyond the bricks, mortar and Wi-Fi, housing is fundamentally a people business. Being able to cater to the wants and needs of the customer is just as important as having the right building with a fast enough cloud wrapped around it.
Just as the B2B property community has rarely had to consider actual consumers, so too has it considered in any great depth the skills pipeline it would need to run these buildings.
Andrew Screen, senior director at CBRE, sees management platforms eventually emerging as strong customer-facing brands in their own right, similar to airlines. “You’ll have those that offer a Virgin Atlantic type of feel at the top, and more basic, EasyJet style offerings lower down,” he says.
Whether the build to rent revolution breeds a new generation of property managers is uncertain. But to keep their investors happy, fund managers will need to be adept at adopting new management techniques and philosophies that err more towards hospitality than property.