In recent years a new type of rental property has begun to spread across the UK property rental market. Here we’ll look at build to rent and what it means for those involved.

First there was buy to let. Landlords or private investors purchased property on the open market, either new build or existing, in order to rent to tenants. Some new build developers have largely built with this market in mind, or perhaps have built hybrid developments to be bought by landlords and owner occupiers.

Build to rent – or BTR or B2R as it is sometimes known – is markedly different. With BTR whole developments are built specifically to let in the private rental market. Projects may be pursued by a BTR operator, or else built by a developer and sold on to an institutional investor or pension fund.

Such schemes are already much more prevalent in other countries than the UK. In the USA, for example, BTR or multi-family living is a well established part of the property market. There, according to CBRE, around 280,000-300,000 units are expected to be developed this year alone.

Reports suggest that a lot of money has or will be invested in the UK BTR market in future. According to research by Savills, even in a period impacted by Covid, £1.8 billion of capital was deployed into the UK build to rent sector in the third quarter of 2020, the highest amount ever.

Savills add that BTR stock includes 50,800 completed homes with a further 36,700 homes under construction and that the future pipeline currently stands at over 84,000 homes, including those in the pre-application stage. They add that this sector is still presently quite small, accounting for around 1% of the private rented sector, but that currently planned projects will increase this to 1.5% – a 50% rise.

Savills research suggests that while BTR developments are currently mainly in large cities, and mainly aimed at young tenants, developers are increasingly interested in suburban locations and family type homes.

So let us look at what those involved in the property market need to consider regarding the BTR property sector and the possible future expansion of it.

Build to rent challenges for agents

Build to rent represents a challenge to agents since BTR developments may not use the services of agents to find tenants and manage properties. Agents may find they are in competition with BTR developments, who frequently have a well marketed and polished product, for tenants.

Agents will need to bear in mind when they are in competition with such developments and address the issue. Strategies include to maintain a portfolio of good quality, well presented properties. Stress the advantages of using an agent in marketing activities, and aim to provide the highest level of service.

Build to rent challenges for landlords and private investors

Build to rent represents a challenge to landlords and private investors, particularly smaller ones. BTR developments are invariably backed by big business and serious money.

Landlords should be aware where BTR developments exist, or are planned, and where these may represent competition. For new investments, target niche areas and niche or specialist property types and tenants where BTR developments are less likely to be viable.

As ever, ensure rents are competitive and aim to give good service. Stress that small can be beautiful with personal, friendly and flexible service that large companies may struggle to compete with.

Tenants and build to rent – points to consider

Agents, landlords and private investors should remember that tenants are very much in the driving seat here. They have a choice.

It is fair to say that BTR developments are often extremely attractive to tenants. They are new, or nearly new, properties with contemporary design and designed specifically for the rental market. They may have low or no up front fees and may offer longer tenancy options. They may have high end features, and be presented as a lifestyle choice. They are likely to be professionally and efficiently managed.

Drawbacks so far as tenants are concerned are that they are presently only available in limited locations such as city centres, although coverage looks likely to increase. New developments may be large and offer something of a sterile environment with little sense of community as ‘rental land’ developments often do. Properties are not individual and may lack character.

In many cases BTR developments, even if presented as affordable, can be a relatively expensive option compared to what is available in the wider rental market – some research suggests around 9% more expensive. In addition, rent rises may be annual and automatic where private landlords may not follow such a policy.

In many cases tenants attracted to BTR developments may not be aware that there are equally attractive and possibly cheaper options in the wider rental market. So, in a property market where build to rent is likely to become more prevalent, this is also an aspect landlords and agents should take into account.

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