Yardi’s Regional Director, Justin Harley, joined industry experts at Property Week’s first BTR 360 conference, held in London, to discuss the essential ingredients for a successful BTR development. The panel was chaired by the BBC’s Tanya Beckett and included:
- Michael Herrington, director of build to rent operations, Related Argent
- Tom Grey, director of BTR consultancy, Cortland Consult
State of the sector
After seeing such rapid growth in the UK over recent years, the current economic environment is certainly presenting challenges when it comes to the BTR development. Herrington noted that this did not come out of the blue, highlighting that despite the positivity of recent years, “people weren’t looking at the regulatory and economic storm clouds on the horizon.”
There was a consensus among the panellists that the sector looks set to become more challenging as economic difficulties deepen. Furthermore, this will require more strategic and streamlined operation to be successful.
Ongoing Challenges
The panellists went on to discuss how the BTR sector is viewed, especially the ever-growing housing crisis in the UK.
Grey stressed his belief that external factors often focus too much on the affordability of housing rather than the supply. In terms of basic numbers, the UK isn’t building new homes at the same rate of most other EU nations, and “getting BTR into an area is proven to increase other forms of housing in that area”.
Harley added to this by questioning the viability of home ownership still being seen as the eventual goal for everyone in the country. “Without these external parties working to change that perspective”, he suggested, “there will be ongoing troubles with housing in the UK”.
Harley went on to state that the debate over the “trickle down” effect of the housing market and the affordability challenges within the sector has become “yet another headwind for the industry”. With so much choice around the EU and in different asset classes, it is even more essential to “be as operationally efficient as possible to ensure that you are able to meet investor goals”. Herrington agreed that “operating a site demanded efficiency” and noted that external parties will get involved no matter what the circumstances. “As an industry, we need to get involved into how this policy is crafted in order to impart our expertise.”
How will the sector develop?
Grey was vocal in his belief that BTR is currently in a golden position where undersupply is such that demand will be there for developments regardless of location. As the industry evolves, it will also broaden the number of different groups it is relevant to. “At the end of the day, every challenge is an opportunity to become more efficient,” says Grey.
Herrington, on the other hand, stressed the importance of flexibility when it comes to developments, particularly around amenity spaces. “These nice to haves often become simply a sales tool which then heads the sector towards an amenity arms race.” In this sense, developments need to ensure versatile amenities that can flex up and down as needed to aid efficiency.
Harley echoed this view, encouraging operators to keep in mind what residents actually want when it comes to amenity spaces. “Really, residents want to have pets, they want more outdoor space and they want help when there is a problem. What they want less of are pools and cinemas.” While the panel agreed that these flashy amenities can help to get people through the door, they are often underutilised and end up being incredibly costly. The key, according to Harley, is “always come back to simplicity”.
How to attract Gen Z
Another key development flagged by the panel is that a new generation of renters are coming of age. Gen Z have different expectations. The panel discussed how the BTR sector is perfectly placed to meet the demands of this demographic.
“With BTR you aren’t just renting a flat, you are renting a lifestyle” says Grey. “The ‘hotelification’ of the industry is moving increasingly towards this high service level offering.” More so than previous generations, Grey believes that younger people are looking for ease and experiences. “They want to be able to move in with a suitcase.”
For Herrington, the key to attracting this new generation of renter relies in providing a high tech, high tough, rented lifestyle. “It’s essential to provide seamless Wi-Fi absolutely everywhere in your development,” he says. Harley agreed, stating that young people don’t necessarily care about technology. However, “they just expect it to be there and they expect it to work”.
How to encourage longer tenures
The panel explored how to get people to stay longer in BTR schemes. And whether increased transparency over pricing increases helps make BTR more attractive than buying.
“Providing top level service makes people want to stay even if they are paying above market value”, says Herrington, who noted that being able to provide this leads directly to lower turnover and shorter void periods.
Grey agreed and added that a maintenance and upkeep of properties is a key factor in encouraging people to stay in BTR rather than buying. “People don’t factor in the cost of upgrading when buying old housing stock, the fact this is all taken care of is a major part of our value offer.”
The problems the labour shortage poses the industry
The labour shortage in the UK is a particular challenge for BTR. “As an industry, we aren’t doing enough to ensure real estate is seen as a legitimate career path”, says Herrington. “Roles within a development shouldn’t be a revolving door. A concierge, for example, shouldn’t have high turnover. It’s up to owners and operators to ensure staff are rewarded properly. These are high skilled roles and they need to be compensated as such.” He also added the importance of building better industry standards around training to ensure operations have the best staff possible.
There was consensus amongst the panellists that people are absolutely the most important aspect of any development. “Whenever residents encounter an issue, the interaction they have with staff will be a key decision point. This will have a major impact on eventual renewal decisions”, Herrington finishes.
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