BTR Ecosystems

July 2019

 

 

Newcomers to the build to rent market could be forgiven for thinking that BTR relates purely to high-end luxury rented residential with all the bells and whistles, in fancy uptown locations. Will BTR define its own range and will this have a limited price spread?  We believe not. Our view at Geraghty Taylor is that BTR will increasingly offer quality rented accommodation across the broad spectrum of rented residential price points. In this review we take a close look at the rental market in a major London suburb.

 

Dataloft provide us with comprehensive data on Stratford

 

In conjunction with residential market analysts, Dataloft, we have taken a very close look at one local London market to see if we can identify any patterns in pricing.  Dataloft has produced comprehensive rental data for the Stratford market drawing upon more than 300 new tenancies agreed in the last year.  The properties involved ranged from studios to 5 bedroom properties.

 

The average rent across these rentals was £1,490 per month, equating to just short of £18,000 a year. 

 

 

 

 

Let’s look at the spread of market rents

 

We then tried to improve upon the headline averages by breaking down the data into price bands (using £’s per month) to help build a distribution graph of rents in the area and give a better indication of the broad spectrum of rental activity in the Stratford market.

 

The chart below present the data for both Stratford (referred to as the “Catchment”) and the wider local area of the London Borough of Newham (referred to as the “Benchmark”).  We see that there is a very wide range of prices being paid, ranging from below £500 a month to above £3,750. The most active band was in the range of £1,250 to £1,500 per month.  

 

 

 

 

Clearly, the number of rooms is an important factor

 

...but not as much as you may think!  The average rent for smaller lettings involving studios and one bedroom flats sits, unsurprisingly, below the average for the full sample.  However, the cost of each additional room appears to be far less significant than the high basic cost for having a “bolt-hole” in Stratford.  The chart shows the results:

 

 

 

This looks a lot like the theory.... but there is more to it

 

It is quite pleasing to see that reality actually resembles the statistical “distribution” curves we all endured in maths lessons!   When we were thinking about this paper we proposed a theoretical model which anticipated this broad distribution of rents but realised it would result from the interaction of specific market ecosystems or subsets of rental types, such as RSL’s   (Registered Social Landlords), HMO’s (Houses of Multiple Occupation) and PRS generally, as well as BTR, each with their own distribution and predominating in a particular price point range.  Here is our initial sketch.

 

 

 

 

What underlies the ecosystem?

 

There simply isn’t the data available to definitively recreate this initial sketch in its entirety from fact but Dataloft have given us the Total market line and, within this, we have worked with the information we can obtain to improve upon our initial thoughts to create a plausible breakdown of the market.  Probably the most surprising result was that the BTR curve was much more widely spread across price points. Take a look.

 

 

 

 

 

Across the market, generally, there is a view that the early BTR offerings are in the upper quartile of prices.  But our review of Stratford, which is one of the most mature BTR markets, shows that BTR is available across the price spectrum. Increasingly, new entrants to the market are pitching in at all points along the curve with a number offering product at the more affordable end.  For instance, in Greenford, Network Homes have just completed “The Big Blue” offering 270 BTR-style units, while charging only 80% of local private rents.

 

Network Homes and L&Q are examples of Housing Associations entering the BTR market.  Given their history, they will undoubtedly bring yet another dimension to the market. And don’t forget the arrival of Blackstone in the affordable housing arena with Sage Housing.

 

How are the major players positioning?

 

We have stuck our neck out a bit by creating this figurative representation of where leading BTR companies might already be positioned on the price point curve.  This will, of course, vary with particular schemes and we apologise if anyone feels inappropriately placed; this is a purely indicative exercise.  We also appreciate that there are operators who already have both luxury and economy brands within their overall stable but it is provided to demonstrate that there is already a diversity.

 

 

 

At the high end of the scale, Essential Living deliver "premium apartments to rent in connected locations" and Moda Living aim to "create the UK's leading lifestyle experience brand", both companies offering high end quality and luxury amenity.   However, Curlew Communities and Rise Homes are both aiming to deliver accommodation at around the level of affordable rents.  Fizzy Living has been providing good quality accommodation focused on value for money locations. Its pitch reads "quality flats to rent in secure buildings across London".  We expect to see BTR offerings throughout the price point spectrum.

 

 

Remember, that at all price points, the killer amenity for BTR is simply quality service. This makes BTR as distinct from PRS generally as logistics warehouses are from manufacturing industrial units. So we would expect it to show some price premium at each level. Studies from JLL and Colliers have already shown that, at the aggregate level, this can be as much as 9% above the rate for comparable PRS stock.

 

This all demonstrates that rented residential accommodation is a complex ecosystem that any valuer, developer or investor needs to fully understand to get the most from a BTR investment.

 

Thank you Dataloft

 

Our thanks go to Sandra Jones and Julia Middleton at Dataloft for their help in preparing this piece.

 

 

Newcomers to the build to rent market could be forgiven for thinking that BTR relates purely to high-end luxury rented residential with all the bells and whistles, in fancy uptown locations. Will BTR define its own range and will this have a limited price spread?  We believe not. Our view at Geraghty Taylor is that BTR will increasingly offer quality rented accommodation across the broad spectrum of rented residential price points. In this review we take a close look at the rental market in a major London suburb.

 

Dataloft provide us with comprehensive data on Stratford

 

In conjunction with residential market analysts, Dataloft, we have taken a very close look at one local London market to see if we can identify any patterns in pricing.  Dataloft has produced comprehensive rental data for the Stratford market drawing upon more than 300 new tenancies agreed in the last year.  The properties involved ranged from studios to 5 bedroom properties.

 

The average rent across these rentals was £1,490 per month, equating to just short of £18,000 a year. 

 

 

 

Please click on these images to expand! 

 

Let’s look at the spread of market rents

 

We then tried to improve upon the headline averages by breaking down the data into price bands (using £’s per month) to help build a distribution graph of rents in the area and give a better indication of the broad spectrum of rental activity in the Stratford market.

 

The chart below present the data for both Stratford (referred to as the “Catchment”) and the wider local area of the London Borough of Newham (referred to as the “Benchmark”).  We see that there is a very wide range of prices being paid, ranging from below £500 a month to above £3,750. The most active band was in the range of £1,250 to £1,500 per month.  

 

 

Please click on these images to expand! 

 

Clearly, the number of rooms is an important factor

 

...but not as much as you may think!  The average rent for smaller lettings involving studios and one bedroom flats sits, unsurprisingly, below the average for the full sample.  However, the cost of each additional room appears to be far less significant than the high basic cost for having a “bolt-hole” in Stratford.  The chart shows the results:

 

Please click on these images to expand! 

 

This looks a lot like the theory.... but there is more to it

 

It is quite pleasing to see that reality actually resembles the statistical “distribution” curves we all endured in maths lessons!   When we were thinking about this paper we proposed a theoretical model which anticipated this broad distribution of rents but realised it would result from the interaction of specific market ecosystems or subsets of rental types, such as RSL’s   (Registered Social Landlords), HMO’s (Houses of Multiple Occupation) and PRS generally, as well as BTR, each with their own distribution and predominating in a particular price point range.  Here is our initial sketch.

 


Please click on these images to expand! 

 

What underlies the ecosystem?

 

There simply isn’t the data available to definitively recreate this initial sketch in its entirety from fact but Dataloft have given us the Total market line and, within this, we have worked with the information we can obtain to improve upon our initial thoughts to create a plausible breakdown of the market.  Probably the most surprising result was that the BTR curve was much more widely spread across price points. Take a look.

 

 

Please click on these images to expand! 

 

Across the market, generally, there is a view that the early BTR offerings are in the upper quartile of prices.  But our review of Stratford, which is one of the most mature BTR markets, shows that BTR is available across the price spectrum. Increasingly, new entrants to the market are pitching in at all points along the curve with a number offering product at the more affordable end.  For instance, in Greenford, Network Homes have just completed “The Big Blue” offering 270 BTR-style units, while charging only 80% of local private rents.

 

Network Homes and L&Q are examples of Housing Associations entering the BTR market.  Given their history, they will undoubtedly bring yet another dimension to the market. And don’t forget the arrival of Blackstone in the affordable housing arena with Sage Housing.

 

How are the major players positioning?

 

We have stuck our neck out a bit by creating this figurative representation of where leading BTR companies might already be positioned on the price point curve.  This will, of course, vary with particular schemes and we apologise if anyone feels inappropriately placed; this is a purely indicative exercise.  We also appreciate that there are operators who already have both luxury and economy brands within their overall stable but it is provided to demonstrate that there is already a diversity.

 

 

 

 

 

Please click on these images to expand! 

At the high end of the scale, Essential Living deliver "premium apartments to rent in connected locations" and Moda Living aim to "create the UK's leading lifestyle experience brand", both companies offering high end quality and luxury amenity.   However, Curlew Communities and Rise Homes are both aiming to deliver accommodation at around the level of affordable rents.  Fizzy Living has been providing good quality accommodation focused on value for money locations. Its pitch reads "quality flats to rent in secure buildings across London".  We expect to see BTR offerings throughout the price point spectrum.

 

Remember, that at all price points, the killer amenity for BTR is simply quality service. This makes BTR as distinct from PRS generally as logistics warehouses are from manufacturing industrial units. So we would expect it to show some price premium at each level. Studies from JLL and Colliers have already shown that, at the aggregate level, this can be as much as 9% above the rate for comparable PRS stock.

 

This all demonstrates that rented residential accommodation is a complex ecosystem that any valuer, developer or investor needs to fully understand to get the most from a BTR investment.

 

Thank you Dataloft

 

Our thanks go to Sandra Jones and Julia Middleton at Dataloft for their help in preparing this piece.