BTR is the perfect balance of delivering the highest standards of service to residents and ensuring that every inch of the asset delivers for investors. However, new build homes and apartments won’t be new forever and the sector is now starting to see the earlier rounds of BTR reach stabilisation and maturity. So, what’s next?
We’re starting to see more developers and investors broaden their search to find the next set of opportunities. Savills have revealed a shift away from traditional BTR city-centre locations in favour of the suburbs, but what impact does this have on Single and Multifamily BTR approaches?
With opportunities in both, we asked our Land and Partnerships Director, Mark Gratton, to share his thoughts:
How would you describe the differences between Single and Multi-Family BTR?
There are some clear differences between Single Family (SFH) and Multifamily (MFH) BTR, I like to break it down into 3 main areas: Size, Location & Regeneration benefits. Your typical multi-family development is often 200+ units. Traditionally this approach has focussed on large scale apartment blocks that are owned by a single fund purely for BTR, potentially with some affordable rent options alongside it.
It’s quite the contrast to the single-family focus, where solely BTR developments tend to be on a much smaller scale, on average around 40-80 homes. We still see larger developments of 200+ units in particularly strong locations but the larger sites, we are part of, tend to be mixed tenure offering Open Market, BTR & Affordable homes.
Naturally, this will create a diverse tenure range that is popular with Local Authorities & can help a developer to de-risk their exposure to Open Market sales and bring along other wider benefits. For example, involving a phase of BTR can help build a better sense of community at the development, BTR will always tend to an early phase on larger sites and can secure tenants rapidly, often at rates of 10-14 units pcm, meaning when people visit the open market units there’s already a strong presence and potential buyers can get a sense of how it could look for them.
When it comes to location, it’s heavily dependent on what we’ve mentioned above. It’s safe to say that when you’re building homes, whether it be BTR homes or open market, you want to make sure the location provides everything your target market could need, like good employment opportunities and great local amenities close by. From a rental perspective, we always want to make sure our locations have access to excellent transport links and a good range of schools in the local area.
Your MFH schemes will tend to be more city centre-based, nestled right in the middle of a thriving location, perfect for city centre workers and young professionals. Whereas with SFH, we tend to focus more on the ‘secondary’ locations. These will still benefit from local employment, good amenities etc. but are naturally more suburban in their nature.
Large regeneration projects tend to always include some form of housing and BTR in either the SFH or MFH form can play an important role in unlocking these large sites. It may be a large MFH apartment block being forward funded that becomes the focal point of a regeneration project that gives food & drink, leisure and retail operators the comfort of some footfall. Alternatively, it may be a phase of 100 suburban houses delivered early, and at pace, in a regen project to quickly get a street scene and a community established on site which will help to bring in other uses & other housebuilders alongside. Both of these uses tend to bring additional, long-lasting, regeneration benefits for an area over and above the housing that is being provided.
Is one tenure a more ‘secure’ option?
Over the years we’ve seen that both SFH and MFH BTR are growing in popularity with institutional investors. This approach isn’t a surprise when you look at how the residential rental market has consistently performed against other sectors over the last 10 – 20 years. BTR is a relatively safe, and increasingly proven, place to establish long term income streams for institutional investors.
For developers and housebuilders, it can give them the opportunity to open up bigger, mixed tenure sites, it can also give them the opportunity to de-risk their reliance on delivering land & build package deals for the Affordable housing market. BTR is a great approach to helping the wider ‘housing problem’ and overcoming inequality of access to housing. Providing open market sale houses for those looking to buy, and market rental homes for those looking to access the perks of high-quality homes without yet being in a position to buy or wanting to buy.
There’s a number of benefits for potential tenants too. Having that institutional landlord means it’s automatically a long-term investment removing that risk of landlords wanting to sell on or move back in! In essence, if the tenant is complying with the lease terms they can stay as long as they like!
A key thing both SFH and MFH have in common is the experience. The development is always managed to a high standard, whether that’s the management of the units themselves or the grounds and surrounding areas, there’s always a dedicated, specialised team on hand to maintain a high standard for tenants throughout their tenancy.
Are there any other key differences for potential renters, like the rental experience?
I briefly touched on this earlier when we discussed SFH vs MFH locations. Although there tends to be a preference/recurring theme when it comes to choosing the locations, there is often a difference in the level of additional amenities on site.
A typical MFH scheme tends to be much more amenity heavy. We’re talking communal lounges, gyms, workspaces etc. – almost like a student accommodation scheme just without the students and university lifestyle! This approach works perfectly for the demographic they are trying to attract and that’s why it tends to work so well in city centres.
Whereas on a typical SFH scheme, you won’t see these big communal amenities. Instead, you’ll see much more green space, units will have their own private garden etc. However, even though communal amenities tend to be reduced there will still be a big focus on the tenant experience. For example, on our Wise Living developments, we’ll run community events and competitions to create and maintain our family-friendly community. Again, this works well for the demographic we’re trying to attract, it’s almost like the next stage on from MFH, the next stage of renting.
So, what impact (if any) does this have on price and affordability?
The MFH tends to be focused at the higher end of the market, often with rents well above the previous market level to justify the amenities and facilities on offer to residents and ultimately to make the scheme stack up in such a strong location. With our SFH stock, we still tend to be able to set rents above the existing market level albeit by a much more modest amount, this really does depend on individual areas and the quality of the existing housing stock we’ll be competing with.
It is worth noting though that a key focus for us and our funders when assessing a new site is the affordability of the rents in an area to ensure we’re delivering a product that is accessible to a large proportion of the market in that locality.
Is there anything we can learn from other countries?
Outside of the UK, I think one of the main players in the BTR market is Germany. Over the years, we’ve seen a shift in demand in favour of renting, moving away from traditional homeownership. Data from Savills shows us that Germany was the largest market in terms of BTR investment in 2020, capturing 40% of the activity. Why? It’s hard to pinpoint exactly why, but reports suggest it’s heavily influenced by the housing policy.
Across Europe and America, the BTR concept has been a long-established rental model. It’s still a relatively new trend here in the UK, capturing the interest of housebuilders and investors over the last 8 years. Naturally, it means they’re a lot more advanced in their BTR journey, and there’s a lot we can learn from their approach, something we’ll discuss in our next blog post!
As we’re starting to see the future trends for the market, is 2021 the year to incorporate BTR in your business model? Speak to our team today.