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  • Writer's pictureKaren Fletcher

SectorScope Analysis: Build-to-rent

Updated: Sep 17, 2023

The number of apartments in London is growing

1. Facts and figures The UK has become a nation of renters. Over 4 million UK households now rent their home, and in cities like London the proportion is higher – it is predicted that by 2025 around 40% of households in the capital will be renting their homes.

A report from Sky News (2nd August) noted that mortgage payers are now a minority in the UK - more people have either paid off a mortgage or are renting. Only Germany, Austria and Denmark have more renting households, and in all these countries, that has been a long-standing state of affairs. This means their rental markets are also more mature.

In the UK, however, the rental market has been dominated by ‘amateur’ landlords (though perhaps ‘non-corporate’ may be a better term) who may own one or two properties to let. What’s more, these buy-to-let properties are seldom specifically designed for the rental market so they are not always suitable. In areas of high demand around major cities, this has left renters poorly served by what’s on offer.

This has created a gap in the market for high-quality, professionally managed rental homes. And this has drawn corporate Build-to-Rent developers to the UK with money to spend. The BPF says that there are now over 250,000 BtR homes (mainly apartments) in the UK.

* 88,000 complete * 53,500 under construction * 112,000 in planning

Forecasts by property consultant Savills estimate that by 2026 there will be 30,000 BtR completions annually. There is an almost-live map showing BtR developments that are in planning, underway or completed on the UKAA website.

c Developments tend to be city-based, but are underway across the UK: Leeds, London, Birmingham and Cardiff being growth areas.

Some key developers in the BtR sector are:

* Greystar * Quintain * Get Living * VervLife * Grainger * HUB

It's also interesting to note that other household names have entered the Build-to-Rent market:

* Legal & General * Lloyds Bank * John Lewis

While some BtR developments consist of single homes in developments, the UK market is currently dominated by multi-storey apartment designs. They are designed and built specifically for rental – they are not made to sell to owner occupiers or to individual buy-to-let landlords.

BtR apartments are designed for today's discerning renters

2. Factors impacting building services specification in the BtR market For the construction industry, BtR is an important sector with several specific requirements. While these are ‘dwellings’, they are usually built on a scale that requires commercial-style thinking about the design and delivery of services such as heating, hot water and ventilation.

Building Regulations As dwellings, BtR properties fall under Part L: Volume One. Under this regulation, dwellings built in the next few years will have to meet the requirements of Part L 2021 which has set higher carbon reduction targets. New dwellings must produce 75% lower carbon emissions and adopt the new Fabric Energy Efficiency Standard.

This will require a close examination of designs around building insulation air tightness as well as energy efficiency. Dwellings are also subject to Part F, covering ventilation, so designs for air tightness must be balanced against requirements for ventilation and good indoor air quality (see also Part O, below)

According to a report from the UK Apartment Association (UKAA): “To date, building sustainably has been considered by most (BtR developers) as a cost burden. Day One construction costs have been the benchmark, not lifecycle costs.”

With new requirements for Part L impacting any new developments in the next few years, we are likely to see a change in attitude. And it must be said that developers are already starting to look at their options around energy and HVAC systems for carbon- and energy-savings.

As dwellings, BtR apartments also fall under the new Part O (Overheating) so it will be important for developers in this sector to look at factors to mitigate overheating. This can include shading and openable windows, however given the city-centre location of many of these buildings, mechanical ventilation with heat recovery (MVHR) might also be a useful technology.

Owners and tenants benefit from energy savings

Owners are also operators Unlike commercial buildings, the developers and owners are also operators. The BtR approach means that the landlord is responsible for the long-term maintenance of the building and apartments. Retaining high standards of service delivery and building operation is key to retaining tenants – in a growing market, they also have more choice about where to live.

Building owners also pay energy bills for shared areas, which can be significant in buildings that include co-working spaces, gyms and communal kitchens, for example.

This is a further incentive for BtR operators to consider the operational costs of their buildings as much as the capital outlay. Unlike some commercial buildings, the owner and the tenants both benefit from investments in energy efficient equipment.

Environmental and energy issues for tenants Unlike the commercial office sector, there is currently little evidence to suggest that domestic tenants will pay higher rent for a ‘green’ apartment. This makes the financial investment in low-carbon features more challenging to justify in this sector. However, there is something to be said for greater certainty around energy costs and lower bills.

Despite these issues, a growing number of BtR developments include facilities for cycle storage and EV charging. There are also some that include solar PVs and heat pumps – though these are more often fitted to single-dwelling BtR homes rather than apartments.

As consultancy Arcadis notes about the adoption of sustainable features: “The BtR sector already wrestles with viability challenges and so this value-driver is key consideration. Related cost differentials will likely equalise over time however, as approaches and supply chains adapt at scale.”

BtR developers are gradually adopting sustainable features such as solar panels.

Client knowledge – a growing understanding of low-carbon technologies Many BtR apartment blocks are all-electric. This makes sense in terms of easier and quicker connections and has the benefit of decarbonising these buildings.

The BtR sector is aware of the changing landscape around heating systems. Several reports on options such as district heating and heat pumps have been produced in the last few years (e.g. from the UKAA on alternatives to gas heating)

The challenges for BtR developers are significant because there are so many considerations for this type of building. It seems that the market is still getting to grips with the technologies.

However, there are projects that are embracing low-carbon systems, such as the L&G Central Quay Cardiff BtR scheme. The mechanical package delivered by Kimpton includes 200-litre internal heat pump cylinders to deliver enough hot water for a family. The system was designed to be pre-constructed and piped off-site to reduce installation times.

3. The future of the UK BtR market and building services requirements

Sustainability Delivering energy efficiency and reduced emissions from the UK’s dwellings must include Build-to-Rent, especially as it is set to have such significance in the market. There are strong arguments for increased adoption of low-carbon technologies, and opportunities in helping clients in this sector make the right decisions for their projects.

A recent report from Cundall on the BtR market in Australia makes this same point. David Collins, Cundall’s director of sustainability states: “To challenge market perceptions around multi-residential property developments, we design for maximum performance and lasting value – not code minimum compliance. We look ahead to 2050 and design to achieve net zero here and now.”

The report also notes that investor sentiment is now much more focused on ESG issues. Investment in buildings that will stand the test of time (and climate change) is high on their agenda, and this is a trend that we are very likely to see internationally in the BtR market.

In a 2022 article for Building magazine, Robert Sloss CEO of BtR developer HUB writes: “With BTR growing from a niche into a sector of such size, how it behaves will have significant environmental and social impact, and - quite rightly - this impact will come under growing scrutiny. Further challenges for developers in this fast-growing market are increasing competition for investment, sites and supply of materials and labour.”

Modular and offsite construction are very important in the BtR market

Modular and offsite construction Rapid and accurate construction is a key element of success for BtR developers – the sooner apartments are ready to rent, the sooner revenues arrive. With this in mind, we are seeing offsite and modular techniques being widely used.

The ability to deliver modular systems, ready to plug-and-play not only reduces installation times, but also helps to minimise deliveries to busy city-centre sites.

A recent example of modular construction in this sector is Smith’s Garden BtR development in central Birmingham. The development has six blocks and 550 apartments. Modular specialist Elements Europe is working on the project which will see 1143 room modules manufactured offsite between November 2023 and January 2025. This means that most of the building’s superstructure will be constructed offsite.

Smart building technology and Proptech The role of smart building technology is two-fold. First, it’s seen as a selling point for potential tenants. Providing the ability to manage their apartment’s heating, lighting, cooling etc from a mobile app is very much in line with BtR trends.

In addition, property management technology helps the on-site facilities team to keep things running smoothly – from managing incoming parcels, organising parking for visitors and booking out on-site meeting rooms for tenants. One example of a BtR software platform is Yardi which combines property management and accounting. Another is HelptheMove which automates change of tenancy notifications to councils, water companies and energy suppliers.

These are features which make building and service management easier and enhance the service offering to tenants to have a direct impact on long-term revenues.

4. What this means for marketers, sales teams and product developers Build-to-rent can be an important and growing sector for companies across the construction sector. Understanding its challenges will be key to winning work.

The sector is in the early stages of adopting low-carbon technologies, but the underlying trend is there. Explaining the benefits in terms of cost-savings for the landlord and tenants will be important. Equally, demonstrating that equipment can be installed and maintained efficiently and effectively will be vital to gain trust with this market.

BtR is focused on a modern, high-quality image. Its key market is young renters who, faced with sky-high house prices, are ‘generation rent’. However, many of them are looking for homes that provide more than a roof over their head. Facilities such as gymnasiums, shared socialising spaces and other useful features are all part of the BtR attraction. Companies delivering into these markets could benefit from a growing interest in making ‘luxury’ affordable for this new type of rental market.

Finally, the ability to deliver products in the form of ‘pods’ or pre-made elements to site will be a winner in this fast-paced construction environment. Often under pressure by local planning laws to reduce traffic to site, products that can help get the work delivered more efficiently and in fewer visits are what this sector wants to see.


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