Category Archives: Newsletter

BTR – A Data Driven Check-Up

Consistently attracting and retaining customers is the core requirement for the financial success of the BTR business model. Although the BTR sector has shown promise at attracting new customers, the ongoing challenge faced by providers is the requirement to continually evolve their housing services to repeatedly position themselves ahead of the market as the most attractive accommodation option in the customer's eye. This is no small challenge. Providers are tasked with continually out-innovating more traditional housing alternatives such as private rentals, other BTR accommodation providers and even against the British dream of homeownership, to provide more appealing housing services for the marketplace.

 

The best way for BTR providers to stay ahead of competitors and ensure long term financial success is to focus efforts on providing home environments that are designed and operated specifically to improve occupants quality of life, so the longer occupants reside, the happier, healthier and better wellbeing they experience.

 

By focusing on designing and operating homes for a better quality of life, the outcomes ensure prospective occupants are more likely to be attracted to and reside for a longer period; resulting in greater market demand and happier long term residents that lead to better operational and financial portfolio performance.

 

How Can Homes Be Designed and Operated to Improve Occupant Quality of Life?

 

The answer is Data.

 

Most BTR providers actively capture portfolio data which is a fantastic first step. However, through the application of Data Science Analysis, BTR providers can further capitalise on these efforts with a far deeper understanding of how the design and operation of their properties directly influence the health, wellbeing and quality of life of their occupants over time.

 

When empowered with higher quality Data evidence, BTR providers can better leverage information from their existing properties, extracting aspects most positively associated with better customer health and wellbeing so every future new build development is scientifically proven to perform better than the last.

 

Why is Data Science needed in Property?

 

Because Data Science is one of the most accurate forms of scientific methodologies available, it provides high quality, low bias evidence that enable better portfolio decisions to be made. Due to the reliability of the information, Data Science is the process used by evidence-based professions such as the medical, fitness and nutritional industries whereby every decision, recommendation or intervention made is based on a robust body of evidence, derived from Data Science Analysis.

 

The consistently accurate decision making in these industries is reliant on the quality of the data supporting it, therefore having the highest quality evidence base possible is critical to their long term success. As the operational and financial success of BTR providers is also reliant on consistently accurate decision making, having the highest quality evidence base available to support decision-makers is vital to continually attract new customers by outpacing competitor housing alternatives.

 

Why is it important to measure the correlation between homes and occupant quality of life?

 

The true performance of any product or service is how does the product or service (variable 1)  influence the health and wellbeing (variable 2) of the consumer over time. In the evidence-based medical, fitness and nutritional industries, the success of every prescription, exercise or diet plan is measured against how it influences the patient’s health and wellbeing.

 

The true performance of the property is no different. Having an accurate identifier for the exact design and operational aspects which provide the greatest positive and negative impacts on occupant quality of life is incredibly powerful. This not only provides a better understanding of what benefits the customer but identifies the exact service aspects which improve operational performance so money can be better invested for greater returns.

 

 

But what does Data Science Analysis identify that normal data capture does not?

 

Data science is the process of measuring the strong correlation between 2 variables to identify a relationship, therefore it is possible to quantify how any portfolio aspect influences another.

 

For example, accurately identifying the specific building, property type, size, layout or location of properties that have the best quality of life outcomes. Understanding how specification levels, window sizes, storage or security in homes influences anxiety, stress, relaxation or calmness. Or even how the housing management team relations, building communal spaces, community feel and neighbourly interactions impact occupant health and wellbeing over time.

 

This evidence is powerful but becomes truly transformative for BTR providers when analysed alongside the operational and financial portfolio performance data, quantifying how the positive and negative health impacts, directly influence the financial performance over 1, 2, 10 or even a 30 year period.

 

Therefore, Data Science provides complete portfolio clarity as to what delivers best value and benefit to occupants and what doesn’t, so operational spending and new build investment can be streamlined for greater operational and financial benefit.

 

 

Geraghty Taylor and LifeProven have recently collaborated to use Data Science Analysis to deliver Evidence-Based Property Consultancy Services (architecture, cost and project management) to help BTR providers deliver better homes with greater accuracy and confidence.

 

 

Create Differently

 

#BTR  #BuildtoRent  #Brand  #Brandbeforebuilding

Will BTR Deliver on Latham’s 1994 Report?

Delivering BTR Through Collaborative Procurement

 

A successful BTR scheme is more than its asset or income value. As important as these business values are, they are not a complete value picture. To ensure revenue and value is optimised and sustainable what needs to be added is a strong value proposition for BTR customers. The characteristics of this offer will differentiate you from your competitors and also provide you with ‘tools’ to evolve your offer to meet changing customer needs.

 

At Geraghty Taylor we use brand as a dynamic collaboration and communication model (partly inspired by Latham) that accurately captures all the inputs that need to be part of well thought through BTR offer. As a methodology ‘brand before building’ describes the important drivers, relationships and outcomes which underpin all design, development and operational decisions for a project. In this context the brand is an ‘interactive detailed briefing document’ that moves the proposition from a business to business dynamic, to a business to customer relationship. In doing so it goes well beyond the usual parameters of a traditional development brief to include current and future operational requirements, how technology will be deployed, the customer experience evolution, design flexibility and futureproofing requirements, revenue and exit strategies, through to marketing and sales collateral.  It calls for a new approach to development, where the building is a derivative of the brand (and not the other way round) and it is created through curated collaboration between key stake holders from the onset.

 

Collaboration is not new, but it continually evolves. BTR is uniquely placed to oversee the next iteration of collaborative procurement and to harness its powerful outputs to make decisions that improve value and reduce risk.

 

What is collaborative procurement?

 

Sir Michael Latham, in his seminal 1994 report ‘Constructing the Team’[1] set out 5 key principles for collaborative procurement as follows: -

 

  1. ‘A specific duty for all parties to deal fairly with each other, and with their subcontractors,

specialists and suppliers, in an atmosphere of mutual cooperation’ [2]

 

  1. ‘Clearly defined work stages, including milestones or other forms of activity schedule’[3]

 

  1. ‘Integration of the work of designers and specialists’[4]

 

  1. ‘A ‘specific and formal partnering agreement’ that is ‘not limited to a particular project’[5]

 

  1. ‘Partnering arrangements that ‘include mutually agreed and measurable targets for

productivity improvements’ [6]

 

How is collaborative procurement relevant to BTR projects?

 

By analysing the specific characteristics of a BTR project against the criteria above it is possible to deduce whether collaborative procurement could be of benefit as follows: -

 

What are the next steps for using collaborative procurement for BTR projects?

 

  1. The delivery phase a BTR development represents a comparatively small portion of the overall expenditure by the BTR developer on the scheme over the lifetime that it holds the asset; typically 30 years. It is therefore important that the design and construction teams work closely together to avoid short-sighted cost savings which may cause the BTR developer to incur increased operational or maintenance costs throughout the life of the asset. Moreover, there is a need for the design and construction teams to work closely with the BTR operator who will manage the development on a day-to-day basis to ensure that scheme is optimized for the efficient operation of the development. Collaborative procurement could help create obligations for the design, construction and operations teams to work together for the long-term benefit of the asset. The BTR developer may also consider that they would not have realised all of their profit from the scheme by the end of the limitation period, typically 12 years after practical completion, of the designers’ and constructors’ appointments so a situation may arise where there is a defect detected in the scheme that affects profitability but the BTR developer has more limited options for recourse. Consequently, it is important that all members of the delivery team work together collaboratively in the BTR developer’s interest to avoid issues occurring.

 

  1. It is important that all stakeholders in the project review and sign-off the proposals as they progress at relevant milestones in the knowledge that rather than the asset being sold at completion it will instead be retained. It is consequently especially important that the proposals are tested that they will deliver expected returns over an extended lifespan. This review process would benefit from the input of the wider design and construction team as well as the BTR developer and their advisers so that it can occur in an atmosphere where the priorities of the overall project and business priorities of the individual contributing organisations are aligned.

 

  1. BTR developers as experienced commercial clients are likely to have specific products that they favour through their own first-hand experience in operating BTR schemes. There will be a desire that the design team works with these specialists through the design process to ensure the design meets client requirements and also to minimize re-design at a later stage. However, there will be little incentive aside from the potential promise of an order for the specialist to help the designers in a typical lump sum contracting scenario. This is particularly relevant where off-site and modern methods of construction is being contemplated where the input of the specialist at an early stage is crucially important.

 

  1. It is likely that a BTR developer will not have only one project in mind and their business model will likely involve a programme of projects. Consequently, there can be benefits of lessons learnt on one project being fed into the next with consistent design and delivery teams selected from a pool that have been determined to possess the necessary qualities and have an established working relationship.

 

  1. As BTR projects generally involve the long-term retention of an asset then how this asset performs over time with respect to maintenance and operational efficiency can be measured and fed back to the original design and construction team. A clear incentive for providing an asset that meets the BTR developers aspirations for annual operating costs for example which be the offer to contribute to future projects.

 

What are the next steps for using collaborative procurement for BTR projects?

 

The BTR developer should assess the different contract forms available and how these support the aims set out above. For example the BTR developer could set up a framework of suppliers which it uses to build up knowledge of BTR delivery and drive best practice from which individual projects are called off. There could be a case for a multi-party contract where all members of the team have obligations to each other to meet the overall project goal with governance structures to suit.

 

Create Differently

 

#BTR  #BuildtoRent #Brand  #Brandbeforebuilding

 

 

[1]Latham, M. (1994). Constructing The Team; Joint Review of Procurement and Contractual Arrangements in the United Kingdom Construction Industry; Final Report (London: Department of the Environment)

[2]Latham, M. (1994), Section 5.18.1.

[3]Latham, M. (1994), Section 5.17, 4.a.

[4]Latham, M. (1994), Section 4.3.

[5]Latham, M. (1994), Section 6.43.

[6]Latham, M. (1994), Section 6.47.

 

With thanks to Daniel Sharp, Senior Quantity Surveyor at Kier Construction, for collaborating in writing this article.

 

 

 

 

BTR: Power to the people

The British Property Federation has estimated that there is 148,046 build to rent units either completed or planned across the UK – a rough breakdown is 34,840 completed, 35,760 under construction, and a further 77,446 with planning permission. This is a substantial addition to the UK’s housing stock, but unlike BTS or traditional PRS models, BTR needs a completely different operational infrastructure.

 

Based on comprehensive experience in the market, Property Recruitment Company has a  formula of 1 employee for every 60 units. Working with this figure, they estimate that there will be a need for over 2500 hires in building operations alone, and that is on the basis of every organisation having a 100% retention rate. To this ends, attraction and retention are going to be of crucial focus for the sector.

 

The operations of a BTR development are crucial to its success and engaged motivated staff are paramount to those operations. There is little point creating fantastic, enticing offerings if they are ultimately poorly staffed by people who are unmotivated. BTR customers increasingly expect greater levels of service, and the optimal running of these services is one of the key factors that is critical in keeping block retention high.

 

To get an insight into their employment journeys so far, Property Recruitment Company, surveyed candidates who have entered the BTR sector at an operational level within the last two years. Below are some of their key findings.

 

86% of employees see themselves working in the BTR sector for at least the next two years

81% Were satisfied by their company’s induction and onboarding

75% Also agreed that the role was what they expected

53% of respondents do not have a clear progression plan

 

Their research suggests that at the moment adequate resources are being put in place to onboard staff, but transparency around career progression needs serious improvement.  They also looked at similar sectors to understand why career progression plans are important and in a survey they conducted with operational employees within the PBSA sector, the biggest reason employees left their current employer was lack of career progression.

 

So, what advice would they give to anyone that will be operating assets within this sector?

 

PROTECT YOUR BRAND – It is surprising how much employers invest in their brand to appeal to customers but don’t connect that job applicants are also their customers. Be clear on your attraction strategy, values and vision, as outside of the conference venue the wider employment market is still very unaware of the great potential career in BTR can provide. Also, for every person who is offered employment there are many more who applied but didn’t make the shortlist, or those that were successful through the interview process, but ultimately were not offered positions. Every step of the process needs to be a positive one as the old adage is still the same: that bad experiences tend to be spoken about more than the good and in a world of online reviews this cannot be taken lightly.  Lastly, ensure you educate and trust your supply chain who are your some of your most important brand managers. This aligns with Geraghty Taylors Brand-Before-Building methodology which focuses on the essential elements of the brand in the design planning stage, building it into the project from the very start.

 

ONBOARDING – Never underestimate the power of a structured onboarding programme.  As a sector, BTR is experiencing record numbers of candidates entering with non-property related backgrounds and with this will come new ideas and innovation, but also a responsibility to educate and alleviate the fear of the unknown. Onboarding should not be perceived as what happens on the first day of employment alone, but instead, from the moment you have found your new employee, it should be a continuous journey.  Ensure there is constant engagement throughout the time from offer to start. Simple things such as site days, team interactions, company educational documents will reap huge reward, comfort and satisfaction.

 

CAREER PROGRESSION – Previous surveys across property classes have suggested that organisations struggle to present operational staff with career progression routes. Even though the route may initially seem unclear, not everything has to be fixed around the next job title people are going to secure. The feedback received is that candidates are happy to be patient providing their skills can be recognised. Ensure you are constantly reviewing your employees, providing training, benefits, work-life balance, corporate social responsibility and internal/ external award recognition.

 

In conclusion, the next few years will see unprecedented levels of employment within the BTR sector and with that will come unique challenges, but many of these can be mitigated through preparation and understanding of your attraction and retention policies. Get your staffing right and the rewards will follow. 

 

Geraghty Taylor understands that good design and customer experience are the source of your revenue, and good staffing is the cornerstone of good customer experience. Looking after the staff who look after your customers is the easiest way to protect your asset and is therefore integral to the success of every BTR development.

 

Create Differently

 

#BTR #BuildtoRent #Brand #Brandbeforebuilding

 

Thank you to Kevin Redman from Property Recruitment Company for his expert collaboration on this article.

Delivering on the Promise

Since the BTR market emerged, much lip-service has been paid to the overriding importance of customer experience and service.  It is now great to see that, as an industry, it appears to be delivering on its promises by creating many happy BTR customers.  These same customers are also scoring their experiences more highly than their counterparts who rent their apartment from private landlords in schemes built for sale.  These are the striking findings of the just-released HomeViews Insights 2019 National Build to Rent Report.

 

Launched in February 2019, HomeViews are like the TripAdvisor for new residential developments in the UK.  TripAdvisor have nurtured our growing appetite for independent reviews of hotels, restaurants, activities and attractions. They now boast an archive with a staggering 760 million reviews and opinions with something like 300 new ones being added every minute.  HomeViews are a welcome addition to the fabric of the BTR market offering occupiers the opportunity to review and rate the developments they live in.  This survey draws on over 5,000 reviews from private rental tenants including those in 84 occupied BTR schemes across the UK.  Residents are invited to rate a number of factors relating to Design, Facilities, Location, Value for Money and Management.

 

Do these reviews matter? In the States, research has shown that 70% of renters decided to visit properties with higher reputation scores and 73% said that reviews had influenced their decision to rent.

 

BTR rated higher than BTS (Build to Sell) in every category.

 

The eye-catching result of the Survey is that BTR occupiers have rated their rented residences in these purpose-built schemes more highly than their apartment-renting counterparts in buildings where the units have been privately sold (BTS), in ALL of the rating categories.

 

* All scores are out of 5

 

A BTR resident’s review for The Trilogy in Manchester says it all; “This experience blows my previous rental experience out of the water! It’s everything I could have asked for and more.”

 

And the apartment owners themselves are less satisfied with the post-purchase service they receive than their renters. Whilst 92% of those in BTR homes would recommend their landlord only 80% of owners would recommend their developer and those that let out their flat themselves get a lower vote of confidence from their tenants at 89%, below the BTR operators.

 

 

BTR is leading in resident experience

 

It is in the sphere of customer service and maintenance where BTR eclipses the experience of New Build owners. 

 

 

 

But is great customer experience ubiquitous?

 

Looking at the Overall Star rating, BTR has a significant advantage over BTS.

 

 

 

Over two thirds of BTR developments have a Star Rating of over 4 out of 5 on HomeViews but clearly some are achieving below average. This information will be available in their Full report to be published later this month.

 

The biggest differentiator between BTR and BTS occupiers, though, is registered in Building Maintenance with a difference of 0.43.  This is where great operators make their mark.

 

 

But it isn’t all a perfect picture for BTR. As HomeViews say, “with 10 of the 84 developments receiving a management rating of 3 or below. However, 26 developments are delivering an incredible building management service and have been rated 4.5 and above.  These include schemes managed by Allsop, Essential Living, Fizzy Living, Way of Life, Greystar, be:here and Legal & General.”

 

.....and great experience is national

 

It is interesting to see that great BTR is far from London-centric.  When comparing the average ratings and scores from BTR tenants living in the regions to London, the regions scored higher on every rating.

 

 

The top 5 developments in Manchester are all BTR schemes with The Trilogy topping the list. Looking at the top 10 BTR schemes nationally, 4 are in London, 3 in Manchester and one each in Birmingham, Liverpool and Newcastle.

 

Maybe Urbanbubble’s Michael Howard had the answer yesterday at the UKAA Annual Conference? In his inimitable style, he said that maybe the occupiers in Liverpool and Manchester have lower expectations, “they’re just happy that the loos are inside the house, not outside!”

 

Location really is a key factor for BTR

 

Maybe one of the advantages regional cities offer their customers is superb location, close to the town centre, an easy walk to work and proximity to great recreation.  This is harder in a city the size of London where local suburban centre amenities become more important.

 

So who is leading the pack in terms of customer satisfaction?

 

HomeViews estimate that the 84 schemes reviewed in the report represent 30% of currently occupied BTR developments and have 34 different developer/operators across 8 cities. At this early stage, there will be well known schemes and operators missing from the review.

 

The Trilogy in Manchester, operated by Allsop tops the list of places to rent in the survey.  In second place is The Cargo Building in Liverpool operated by Savills.  Coming in third is Dressage Court in London operated by Essential Living.

 

Other operators featuring in the winners list include Greystar, Legal & General, Fizzy Living, be:here, Get Living and Tipi as well as Way of Life,  JLL, Grainger and Uncle in the regions.

 

The report is a great read and a very valuable contribution to the sector’s understanding of its own business.  Congratulations to Rory and Hannah at HomeViews.

 

Geraghty Taylor has been at the forefront of identifying and distilling the factors that truly differentiate BTR from other rental propositions.  It is great to see that customers really do appreciate those differences and are happy to pay to access them.  We know that this is an ever-evolving sector and to get your ratings high up the HomeViews chart you will need to continually innovate in your new builds and re-engineer your older product.  We look forward to continuing to help lead in this “Ratings” battle.

 

Create Differently

 

#BTR #BuildtoRent #Brand #Brandbeforebuilding

 

If you work within the property industry and would like more information on HomeViews contact: Rory Cramer Rory@homeviews.com

 

For more information on marketing and reports from HomeViews contact: Hannah Marsh Hannah@homeviews.com

 

 

 

Since the BTR market emerged, much lip-service has been paid to the overriding importance of customer experience and service.  It is now great to see that, as an industry, it appears to be delivering on its promises by creating many happy BTR customers.  These same customers are also scoring their experiences more highly than their counterparts who rent their apartment from private landlords in schemes built for sale.  These are the striking findings of the just-released HomeViews Insights 2019 National Build to Rent Report.

 

Launched in February 2019, HomeViews are like the TripAdvisor for new residential developments in the UK.  TripAdvisor have nurtured our growing appetite for independent reviews of hotels, restaurants, activities and attractions. They now boast an archive with a staggering 760 million reviews and opinions with something like 300 new ones being added every minute.  HomeViews are a welcome addition to the fabric of the BTR market offering occupiers the opportunity to review and rate the developments they live in.  This survey draws on over 5,000 reviews from private rental tenants including those in 84 occupied BTR schemes across the UK.  Residents are invited to rate a number of factors relating to Design, Facilities, Location, Value for Money and Management.

 

Do these reviews matter? In the States, research has shown that 70% of renters decided to visit properties with higher reputation scores and 73% said that reviews had influenced their decision to rent.

 

BTR rated higher than BTS (Build to Sell) in every category.

 

The eye-catching result of the Survey is that BTR occupiers have rated their rented residences in these purpose-built schemes more highly than their apartment-renting counterparts in buildings where the units have been privately sold (BTS), in ALL of the rating categories.

 

* All scores are out of 5
* Click images to enlarge

 

A BTR resident’s review for The Trilogy in Manchester says it all; “This experience blows my previous rental experience out of the water! It’s everything I could have asked for and more.”

 

And the apartment owners themselves are less satisfied with the post-purchase service they receive than their renters. Whilst 92% of those in BTR homes would recommend their landlord only 80% of owners would recommend their developer and those that let out their flat themselves get a lower vote of confidence from their tenants at 89%, below the BTR operators.

 

 

BTR is leading in resident experience

 

It is in the sphere of customer service and maintenance where BTR eclipses the experience of New Build owners. 

 

 

 

But is great customer experience ubiquitous?

 

Looking at the Overall Star rating, BTR has a significant advantage over BTS.

 

 

 

Over two thirds of BTR developments have a Star Rating of over 4 out of 5 on HomeViews but clearly some are achieving below average. This information will be available in their Full report to be published later this month.

 

The biggest differentiator between BTR and BTS occupiers, though, is registered in Building Maintenance with a difference of 0.43.  This is where great operators make their mark.

 

 

But it isn’t all a perfect picture for BTR. As HomeViews say, “with 10 of the 84 developments receiving a management rating of 3 or below. However, 26 developments are delivering an incredible building management service and have been rated 4.5 and above.  These include schemes managed by Allsop, Essential Living, Fizzy Living, Way of Life, Greystar, be:here and Legal & General.”

 

.....and great experience is national

 

It is interesting to see that great BTR is far from London-centric.  When comparing the average ratings and scores from BTR tenants living in the regions to London, the regions scored higher on every rating.

 

 

The top 5 developments in Manchester are all BTR schemes with The Trilogy topping the list. Looking at the top 10 BTR schemes nationally, 4 are in London, 3 in Manchester and one each in Birmingham, Liverpool and Newcastle.

 

Maybe Urbanbubble’s Michael Howard had the answer yesterday at the UKAA Annual Conference? In his inimitable style, he said that maybe the occupiers in Liverpool and Manchester have lower expectations, “they’re just happy that the loos are inside the house, not outside!”

 

Location really is a key factor for BTR

 

Maybe one of the advantages regional cities offer their customers is superb location, close to the town centre, an easy walk to work and proximity to great recreation.  This is harder in a city the size of London where local suburban centre amenities become more important.

 

So who is leading the pack in terms of customer satisfaction?

 

HomeViews estimate that the 84 schemes reviewed in the report represent 30% of currently occupied BTR developments and have 34 different developer/operators across 8 cities. At this early stage, there will be well known schemes and operators missing from the review.

 

The Trilogy in Manchester, operated by Allsop tops the list of places to rent in the survey.  In second place is The Cargo Building in Liverpool operated by Savills.  Coming in third is Dressage Court in London operated by Essential Living.

 

Other operators featuring in the winners list include Greystar, Legal & General, Fizzy Living, be:here, Get Living and Tipi as well as Way of Life,  JLL, Grainger and Uncle in the regions.

 

The report is a great read and a very valuable contribution to the sector’s understanding of its own business.  Congratulations to Rory and Hannah at HomeViews.

 

Geraghty Taylor has been at the forefront of identifying and distilling the factors that truly differentiate BTR from other rental propositions.  It is great to see that customers really do appreciate those differences and are happy to pay to access them.  We know that this is an ever-evolving sector and to get your ratings high up the HomeViews chart you will need to continually innovate in your new builds and re-engineer your older product.  We look forward to continuing to help lead in this “Ratings” battle.

 

Create Differently

 

#BTR #BuildtoRent #Brand #Brandbeforebuilding

 

If you work within the property industry and would like more information on HomeViews contact: Rory Cramer Rory@homeviews.com

 

For more information on marketing and reports from HomeViews contact: Hannah Marsh Hannah@homeviews.com

 

 

 

Renting For Life

An investment opportunity not to be missed!

 

Imagine, if you will, the average Brit being approached in the street by someone offering an amazing investment opportunity that has apparently worked for thousands in the past. It could make you a small fortune and give you enough money to retire on. And it’s not Bitcoin.

 

But to participate you have to invest the lion's share of your life's savings and take out the biggest loan you can afford on your current income to invest in the scheme. You won't receive any income or dividend from this investment and your success depends on you personally selling the investment at a profit in the future. Of course, he goes on to explain that your investment is at risk if values go down. In fact, you could lose the whole investment and ruin your credit rating but at least your other assets are safe (unlike in America!) Oh, and the name of this investment is a mortgage or "death pledge" as it translates in old Norman legal French from where it originates. Appealing?

 

You can just imagine the pennywise British queuing up for this investment can't you? Well we did! In fact by 2003, over 70% of the British population lived in a home that was secured on such a mortgage.

 

There’s money in property

 

Clearly something was driving this stampede towards the biggest financial risk that the majority of those involved had ever taken on in their lives.

 

The answer, we are reliably informed by Dr. Mark Andrew of Cass Business School, is explained by the Standard Housing Arbitrage Condition formula; see if you can spot it.

 

UCC=(1-θ)r+δ+tc+pt–phe+λ/μ

Where the user cost of owning a house (UCC) is determined by:

 

  •  r = mortgage interest rate [+]
  •  δ = depreciation/maintenance expenditure rate [+]
  •  θ = housing mortgage subsidies / tax breaks[-]
  •  pt = property tax rate [+/-]
  •  tc = annualised transactions costs [+]
  •  λ/μ = credit market constraints [+]
  • phe = expected (housing) nominal rate of capital gains [-] where (phe = ge + π) and

                       o π = general inflation rate [-]
                       o ge = expected (housing) real rate of capital gains [-]

 

Did you spot it? It is the phe bit- in particular ge. Put into layman’s language it means that the imputed costs of owning a house are significantly influenced by the expectation of capital appreciation or as we said above, the chances of selling “at a profit in the future”.

 

The vast majority viewed the likelihood of house prices going up as pretty assured and this would have been based on what they, and their parents, had experienced themselves. Thus the cost of owning, albeit often initially higher in actual terms, was seen as far better than renting because of the hoped-for investment gains.

 

 

Take a look at this chart of house price inflation from Nationwide. For a prolonged period from post war to 1989 prices had risen steadily. There was a fall and stagnation through the early 1990’s following recession (which partly put to bed the long vaunted idea that residential values never fall) but this then fuelled the huge growth through to 2007.

 

So this expectation of a significant investment return, over and above the simple utility of having a place to live, coloured decision making throughout the last 50 years. John German at Invesco has often said that their research shows the residential rental market to be quite rational but that the residential capital market has the ability to defy logic at times, often when phe is coming in to play.

 

Take the recent situation where many Central London schemes were valued at a level that means the rent achievable equated to a yield of maybe less than 2.5%, but canny BTR operators would not bid much below 4.5% for similar property in the location. John’s theory suggests the rent being paid is properly reflecting the location and quality of the apartment but its price is putting a serious premium on its value as an investment. Clearly other factors like phe come in to play compounded by the influence of foreign investors seeing it as a store of wealth and using different target rates, borrowing rates and even currency gambles.

 

So why the rise in renting – is it just a reaction to those high prices?

 

Renting as a choice is on the rise. Consultants PwC argue that there will be a shift in London from 60/40 in favour of owning in the year 2000 to 60/40 in favour of renting by 2025.

High prices clearly play an important part, probably best indicated by this chart of Affordability taking into account the cost of buying a house and household income. Whilst at a high level, the market is not at an extreme so there are clear secular trends at play.

 

 

These underlying trends are powerful. Society, especially in developed countries, is changing from a materialist to experiential consumer; it is not about owning things but about great experiences. If renting means I can afford to live in a better apartment than the one that I can afford to buy, why wouldn’t I make that choice? We have embraced the sharing economy and are now more comfortable to share with people rather than own in everything from music and videos through to cars and workspace. This has brought a willingness to have amenity outside the confines of our own living space and has allowed us to trade “space for place” so that one advantage of not owning might be the ability to rent a smaller apartment in a far more attractive location.

 

The search for experience and flexibility to work remotely has created the digital nomad or even the “figital” nomad as my typo just delivered! Someone who is willing to take, or maybe even searching for, opportunities to work in different locations, unencumbered by ownership.

 

On top of these, add a general urbanisation of the population with a new found desire to live centrally in cities rather than the earlier drift to the suburbs and rural areas driven both by the positives of more access to experience through culture and entertainment and the avoidance of a long and tiresome commute. The sea-change in demographics that is delivering a population that is no longer dominated by family units with a number of kids but now has over two-thirds of households without children and many more single occupiers both young and old.

 

This is delivering a consumer base that requires a whole lot more choice than the conventional volume-built family home and whose predisposition to the mortgage is far from guaranteed.

 

Renting for Life

 

So what can rental markets offer? In essence, a solution for life; both in terms of space that can suit the wants and needs of individuals at all stages of their life and in terms of the style of life they may wish to follow.

 

Purpose-built student housing is now a recognised part of the property landscape. Colleges often supplement their own stock with direct relationships with independent operators. The standard of accommodation is good and rent is often higher than an equivalent room in a shared house. Higher quality options with larger room sizes and more amenity are common, usually chasing wealthier older or foreign students.

 

Bolstered by this positive experience, students will naturally consider extending their stay of tenure in the collegiate style and look at co-living options. These offer very small apartments but considerable shared amenity space in central locations where the development of strong community in the schemes is actively promoted. Operators like The Collective have proved that this kind of offer has wide appeal across the age groups, not just the young.

 

The next progression is to the Build to Rent market. We now change from rooms to units ranging from studios to 4-bed apartments able to accommodate individuals, sharers and families. Whilst many originally envisaged these only suiting Millennials, the experience of the earlier operators has shown that BTR has wide appeal across age groups and interestingly has attracted many ”millennial-minded” older people. In the States, the market has developed the idea of age-restricted multifamily schemes to appeal to those that prefer the idea of a scheme designed to the needs of their generation. In reality, the typology of the building is pretty similar but the amenity component can be increased and charged for and maybe additional sensing can be built in to monitor the health of individual residents.

 

There is an argument that suburban semi offers a better solution to many bringing up families where the private garden, greater space and independent living is preferable. Maybe, but these families can now take advantage of new villages provided by innovative operators like Sigma Capital Group who have delivered nearly 5,000 family units through the PRS REIT plc.

 

 

Geraghty Taylor has created a very adaptable solution for the next-generation family home called LivinHome.

The concept is simple; a typology which can accommodate different lifestyle requirements through flexible and adaptable design. On a conventional basis, the home “chassis” can deliver a home for a small family with a connected rental unit. As the family grows, the rental unit is taken in for bedroom space but as the family matures and kids move out it may be re-configured to house elderly family members moving in. All of this achievable over a weekend! The BTR industry is fascinated by the application of this design to help de-risk unit mix decisions where these are no longer literally set in concrete on day one but can adapt to the experience of marketing and to changes in the market over time.

 

The next step from suburban BTR might be back in to its urban counterpart as the children move away. Or it could be a first step onto the Senior Living continuum. In America, AEW’s Research team have set out a “Continuum of Care” which stretches from age-restricted multifamily through Independent Living and Assisted Living to Memory Care and Nursing Care. The provision of new senior housing has overtaken nursing care provision and the general picture is one of providing desirable facilities for active seniors. They identify that 13% of USA’s 80+ population are occupying independent living or assisted living in private paying accommodation and why wouldn’t they when amenity in the building can represent as much as 30% of the floors space and include several high class restaurants, fitness facilities and almost certainly a bar to cater for their life-long passion for a drink.

 

This compares to less than 5% of the UK’s 80+s where the attitude is to avoid care at all cost. Just to match the US percentage, we would need to build 260,000+ units. But the number of seniors over 85 is set to treble over the next 30 years so there is a clear need for new rental solutions.

 

Where does the value lie?

 

Delivering a product that meets the wants and needs of the occupier, whatever age, is the key to creating happy customers. Flexibility of approach and provision of new and changing amenity as needs evolve is essential for retention, as well as maintaining income in a competitive consumer market. Has the nascent UK industry really embraced the fact that creating this user experience is where value lies and not in the physical asset itself?

 

Modern data capture and use of clever Proptech can inform the owner about the use of the building and help with adaptation and changes as long as the original structure is flexible enough to allow this.

 

So what have we lost by ditching the mortgage?

 

To come back to where we started, the case for renting to achieve “a life less ordinary” has been argued strongly but won’t we miss out financially?

As a renter you will retain your large deposit and possibly have some extra income that would have funded the higher mortgage cost to rent a better experience or invest. This can go in to the wider investment market or maybe into assets offering the old-world appeal of property.

There is no reason why a Sigma Capital occupier should not invest that deposit in the shares of the UK PRS REIT. This would offer exposure to a wider portfolio of assets just like the home they occupy. We may in the future see scheme-specific offerings through new exchanges like IPSX.

 

Operators themselves may bring forward clever schemes related to their own buildings to help with funding and to deliver a sense of ownership without losing any management control.

 

Maybe even clever futures products could deliver the income and capital gain from a house price index to retail customers, similar to those available to institutional investors on the Nationwide index.

 

An Englishman’s home can still be his castle; he just doesn’t have to own it anymore.

 

 

Geraghty Taylor creates differently and inventively develops new products to meet changing market requirements.

 

#BTR #BuildtoRent #Brand #Brandbeforebuilding

An investment opportunity not to be missed!

 

Imagine, if you will, the average Brit being approached in the street by someone offering an amazing investment opportunity that has apparently worked for thousands in the past. It could make you a small fortune and give you enough money to retire on. And it’s not Bitcoin!

 

But to participate you have to invest the lion's share of your life's savings and take out the biggest loan you can afford on your current income to invest in the scheme. You won't receive any income or dividend from this investment and your success depends on you personally selling the investment at a profit in the future. Of course, he goes on to explain that your investment is at risk if values go down. In fact, you could lose the whole investment and ruin your credit rating but at least your other assets are safe (unlike in America!) Oh, and the name of this investment is a mortgage or "death pledge" as it translates in old Norman legal French from where it originates. Appealing?

 

You can just imagine the pennywise British queuing up for this investment can't you? Well we did! In fact by 2003, over 70% of the British population lived in a home that was secured on such a mortgage.

 

There’s money in property

 

Clearly something was driving this stampede towards the biggest financial risk that the majority of those involved had ever taken on in their lives.

 

The answer, we are reliably informed by Dr. Mark Andrew of Cass Business School, is explained by the Standard Housing Arbitrage Condition formula; see if you can spot it.

 

UCC=(1-θ)r+δ+tc+pt–phe+λ/μ

Where the user cost of owning a house (UCC) is determined by:

 

  •  r = mortgage interest rate [+]
  •  δ = depreciation/maintenance expenditure rate [+]
  •  θ = housing mortgage subsidies / tax breaks[-]
  •  pt = property tax rate [+/-]
  •  tc = annualised transactions costs [+]
  •  λ/μ = credit market constraints [+]
  • phe = expected (housing) nominal rate of capital gains [-] where (phe = ge + π) and

                       o π = general inflation rate [-]
                       o ge = expected (housing) real rate of capital gains [-]

 

Did you spot it? It is the phe bit- in particular ge. Put into layman’s language it means that the imputed costs of owning a house are significantly influenced by the expectation of capital appreciation or as we said above, the chances of selling “at a profit in the future”.

 

The vast majority viewed the likelihood of house prices going up as pretty assured and this would have been based on what they, and their parents, had experienced themselves. Thus the cost of owning, albeit often initially higher in actual terms, was seen as far better than renting because of the hoped-for investment gains.

 

 

Take a look at this chart of house price inflation from Nationwide. For a prolonged period from post war to 1989 prices had risen steadily. There was a fall and stagnation through the early 1990’s following recession (which partly put to bed the long vaunted idea that residential values never fall) but this then fuelled the huge growth through to 2007.

 

So this expectation of a significant investment return, over and above the simple utility of having a place to live, coloured decision making throughout the last 50 years. John German at Invesco has often said that their research shows the residential rental market to be quite rational but that the residential capital market has the ability to defy logic at times, often when phe is coming in to play.

 

The recent situation where many Central London schemes were valued at a level that means the rent achievable equated to a yield of maybe less than 2.5%, but canny BTR operators would not bid much below 4.5% for similar property in the location. John’s theory suggests the rent being paid is properly reflecting the location and quality of the apartment but its price is putting a serious premium on its value as an investment. Clearly other factors like phe come in to play compounded by the influence of foreign investors seeing it as a store of wealth and using different target rates, borrowing rates and even currency gambles.

 

So why the rise in renting – is it just a reaction to those high prices?

 

Renting as a choice is on the rise. Consultants PwC argue that there will be a shift in London from 60/40 in favour of owning in the year 2000 to 60/40 in favour of renting by 2025.

High prices clearly play an important part, probably best indicated by this chart of Affordability taking into account the cost of buying a house and household income. Whilst at a high level, the market is not at an extreme so there are clear secular trends at play.

 

 

These underlying trends are powerful. Society, especially in developed countries, is changing from a materialist to experiential consumer; it is not about owning things but about great experiences. If renting means I can afford to live in a better apartment than the one that I can afford to buy, why wouldn’t I make that choice? We have embraced the sharing economy and are now more comfortable to share with people rather than own in everything from music and videos through to cars and workspace. This has brought a willingness to have amenity outside the confines of our own living space and has allowed us to trade “space for place” so that one advantage of not owning might be the ability to rent a smaller apartment in a far more attractive location.

 

The search for experience and flexibility to work remotely has created the digital nomad or even the “figital” nomad as my typo just delivered! Someone who is willing to take, or maybe even searching for, opportunities to work in different locations, unencumbered by ownership.

 

On top of these, add a general urbanisation of the population with a new found desire to live centrally in cities rather than the earlier drift to the suburbs and rural areas driven both by the positives of more access to experience through culture and entertainment and the avoidance of a long and tiresome commute. And remember the sea-change in demographics that is delivering a population that is no longer dominated by family units with a number of kids but now has over two-thirds of households without children and many more single occupiers both young and old.

 

This is delivering a consumer base that requires a whole lot more choice than the conventional volume-built family home and whose predisposition to the mortgage is far from guaranteed.

 

Renting for Life

 

So what can rental markets offer? In essence, a solution for life; both in terms of space that can suit the wants and needs of individuals at all stages of their life and in terms of the style of life they may wish to follow.

 

Purpose-built student housing is now a recognised part of the property landscape. Colleges often supplement their own stock with direct relationships with independent operators. The standard of accommodation is good and rent is often higher than an equivalent room in a shared house. Higher quality options with larger room sizes and more amenity are common, usually chasing wealthier older or foreign students.

 

Bolstered by this positive experience, students will naturally consider extending their stay of tenure in the collegiate style and look at co-living options. These offer very small apartments but considerable shared amenity space in central locations where the development of strong community in the schemes is actively promoted. Operators like The Collective have proved that this kind of offer has wide appeal across the age groups, not just the young.

 

The next progression is to the Build to Rent market. We now change from rooms to units ranging from studios to 4-bed apartments able to accommodate individuals, sharers and families. Whilst many originally envisaged these only suiting Millennials, the experience of the earlier operators has shown that BTR has wide appeal across age groups and interestingly has attracted many ”millennial-minded” older people. In the States, the market has developed the idea of age-restricted multifamily schemes to appeal to those that prefer the idea of a scheme designed to the needs of their generation. In reality, the typology of the building is pretty similar but the amenity component can be increased and charged for and maybe additional sensing can be built in to monitor the health of individual residents.

 

There is an argument that the suburban semi offers a better solution to many bringing up families where the private garden, greater space and independent living is preferable. Maybe, but these families can now take advantage of new villages provided by innovative operators like Sigma Capital Group who have delivered nearly 5,000 family units through the PRS REIT plc.

 

 

Geraghty Taylor has created a very adaptable solution for the next-generation family home called LivinHome.

The concept is simple; a typology which can accommodate different lifestyle requirements through flexible and adaptable design. On a conventional basis, the home “chassis” can deliver a home for a small family with a connected rental unit. As the family grows, the rental unit is taken in for bedroom space but as the family matures and kids move out it may be re-configured to house elderly family members moving in. All of this achievable over a weekend. The BTR industry is fascinated by the application of this design, helping tp de-risk unit mix decisions where these are no longer literally set in concrete on day one, but can adapt to the experience of marketing and to changes in the market over time.

 

The next step from suburban BTR might be back in to its urban counterpart as the children move away. Or it could be a first step onto the Senior Living continuum. In America, AEW’s Research team have set out a “Continuum of Care” which stretches from age-restricted multifamily through Independent Living and Assisted Living to Memory Care and Nursing Care. The provision of new senior housing has overtaken nursing care provision and the general picture is one of providing desirable facilities for active seniors. They identify that 13% of USA’s 80+ population are occupying independent living or assisted living in private paying accommodation and why wouldn’t they when amenity in the building can represent as much as 30% of the floors space and include several high class restaurants, fitness facilities and almost certainly a bar to cater for their life-long passion for a drink.

 

This compares to less than 5% of the UK’s 80+s where the attitude is to avoid care at all cost. Just to match the US percentage, we would need to build 260,000+ units. But the number of seniors over 85 is set to treble over the next 30 years so there is a clear need for new rental solutions.

 

Where does the value lie?

 

Delivering a product that meets the wants and needs of the occupier, whatever age, is the key to creating happy customers. Flexibility of approach and provision of new and changing amenity as needs evolve is essential for retention, as well as maintaining income in a competitive consumer market. Has the nascent UK industry really embraced the fact that creating this user experience is where value lies and not in the physical asset itself?

 

Modern data capture and use of clever Proptech can inform the owner about the use of the building and help with adaptation and changes as long as the original structure is flexible enough to allow this.

 

So what have we lost by ditching the mortgage?

 

To come back to where we started, the case for renting to achieve “a life less ordinary” has been argued strongly but won’t we miss out financially?

Well, remember, as a renter you will retain your large deposit and possibly have some extra income that would have funded the higher mortgage cost to rent a better experience or invest. This can go in to the wider investment market or maybe into assets offering the old-world appeal of property.

There is no reason why a Sigma Capital occupier should not invest that deposit in the shares of the UK PRS REIT. This would offer exposure to a wider portfolio of assets just like the home they occupy. We may in the future see scheme-specific offerings through new exchanges like IPSX.

 

Operators themselves may bring forward clever schemes related to their own buildings to help with funding and to deliver a sense of ownership without losing any management control.

 

Maybe even clever futures products could deliver the income and capital gain from a house price index to retail customers, similar to those available to institutional investors on the Nationwide index.

 

An Englishman’s home can still be his castle; he just doesn’t have to own it anymore.

 

 

Geraghty Taylor creates differently and inventively develops new products to meet changing market requirements.

 

#BTR #BuildtoRent #Brand #Brandbeforebuilding

“Free holidays for BTR customers”

 

"Free holidays for our BTR customers"; now there's an offer!  Or maybe just, "Don't pay while you’re away".  Are we going to see these kinds of inducements being offered by BTR operators in what is likely to become a hard-fought marketing battle to secure new customers?

 

Sounds a bit far-fetched and far too costly when you first hear it but a few modern-minded intermediary companies who are experienced in hospitality and rooted in the Proptech world think this is far more than a reality; it is a revenue generator for landlords and occupiers alike. Let’s call these guys the ultra-short let (USL) operators.

 

The phenomenon of the Ultra-Short Let

 

You’ve heard plenty about the growth of the “sharing economy” driven by the wants and needs of the millennial generation. Airbnb started as a business in 2008 to service the lodging needs of the new “digital nomads” whose flexible, remote working habits and desire for travel experiences gave rise to the demand for a whole new short term lodging experience – not in a hotel. Flip this coin and you see that those nomads that have long-term rentals also wanted to monetise their own space when they are out of town.

 

This phenomenon has seen Airbnb’s penetration grow to now take 20% of total lodging bookings and, with competitor HomeAway, secure a third of the total market.  Airbnb now lets more rooms than the Hilton chain and is chasing down Marriot.  In terms of listings, it was offering 4.92 million rooms in Q1 2019, nearly four times Marriot’s offer and more than the total offer of the 5 largest hotel operators.

 

Lavanda, one of the USL operators say that 300,000 companies now use Airbnb for business travel – up from only 250 in 2015 and 42% of users have switched directly from using hotels.  So the demand for non-hotel related lodging is growing rapidly.

 

Analysts, Inside Airbnb, identify 33,000 private rooms in Central London on the platform so supply is clearly rising to meet this demand BUT many of these rooms are, themselves, let on AST’s meaning a lot of this short-let activity is likely to be in breach of the lease or possibly even planning.  Given that most new BTR leases follow the AST model, how can this possibly work for BTR?

 

How can ultra-short lets work in BTR?

 

The premise:
If you let your flat for a limited period of a month, or individual weeks or even a series of short, multi-night stays, you should achieve total revenue well in excess of your normal monthly rent;  attractive to both landlords and occupiers alike.

 

The hurdle:
In most cases the Assured Shorthold Tenancy that gives you the right to occupy your flat restricts you from sub-letting or sharing your flat with others. So the ability to short let is only available to the landlord.

 

The conundrum:
One of our favourite BTR catch-phrases at Geraghty Taylor is “Happy people give you money!  So landlords can make their occupiers happy by giving them the right to short-let their flat. Some even argue that this is an added amenity.

 

Surveys show that some 50% of PRS occupiers in the UK are “millennials” and that this almost perfectly matches the profile of customers who book on Airbnb.  In a survey Lavanda conducted of their own clients’ occupiers, 35% said they would be keen on renting their flat out on the short-term rental market when they were away, so offering this benefit should create a lot of happy people.

 

What about the other side of the story, though?  Is this compatible with developing the so highly valued BTR community within the building? On the face of it this should be a complete anathema to the BTR operator; all these new faces popping in and out, using the facilities with no stake in the community.

 

But couldn't this be a positive contributor to the atmosphere? Vacationing guests are far more likely to take advantage of facilities keeping them vibrant. And they are so much more likely to want to meet and interact with willing residents in the shared spaces eager to learn more about the location and all in a positive buoyant mood.  

 

Clearly considerations will vary across buildings and brands. Limitations and restrictions will be paramount and control of usage of amenities to support the occupiers is crucial; as is the initial decision on just how much of the building to allow to use ultra-short term lets.

 

...and what about the management hassle?

 

It may make some sense but think of the management headache of all this. Well the USL operators have. They typically offer a range of solutions.  Either adopt their software system and use it within your own operation, so maintaining your own brand and identity or take on board the USL operator as a partner to manage this facet of your BTR business on pre-agreed terms.   It could be as simple as agreeing to allow occupiers to short-let through the operator.

 

Staykeepers, another leading USL operator, take a fee for achieving the letting, vetting the customer in advance in line with agreed policy, meeting and greeting them on arrival and servicing the flat after their stay; all with the help of sophisticated software apps that inform them and their landlord clients.  They claim to be able to increase the yield on your residential investment by an additional 1.5% by increasing occupancy and revenue through ultra-short lets. 

 

The additional revenue generated could be shared with the flat’s occupier, either by waving his rent while absent or even by sharing the premium achieved – so paid holidays could be a potential offer.

 

... hospitality informing residential investment

 

Let’s remember that the cornerstones of BTR are service and customer experience.  These are fundamentals in the hospitality business too so it shouldn’t really surprise us that residential investors are eager to identify where hospitality can inform their business model.

 

Residential investors are using USL systems to regulate short-letting in their buildings and legitimise occupier activity.  Some introduce it at day one of lease-up to achieve stabilisation faster, create community quicker and offer “try before you buy”; something Lavanda have done with Europa Capital and Atlas residential at Anaconda Cut in Manchester.

 

Paradoxically, ultra-short lets can also lead to longer lease lengths as occupiers will be more willing to commit if they can see they can offset their rental liability when they are absent through a consented short-let policy.

 

...and there’s so much more to come

 

As with many areas of real estate at present, watch this space.  Millions of dollars are being invested in new ventures to capture a piece of this sharer-economy residential marketplace; often by players from the hospitality world teaming up with traditional real estate investors.

 

Brookfield plan to invest $200 million in a joint venture with Niido, the multifamily development partner of Airbnb.  Niido fully embraces the concept of short-letting in their schemes in Nashville and Orlando, offering hotel-style service to the guests of their occupiers. Their website even leads with a calculator showing occupiers how much of their annual rent is covered by listing their apartment for so many nights per month!  Daydream Apartments follow a similar strategy and acquired their first building in Denver for $304m in May.  Nearer home, The Collective is now offering rooms available to rent by the night.

 

Dubai Asset Management has announced its venture into the short-term rental market space by partnering with leading holiday home operator, HiGuests. This coincides with Expo 2020 being held in Dubail expecting to attract 17 million international visitors over the six months it is on.

 

Together Airbnb and Niido plan 14 home-sharing complexes by 2020. Expedia has bought two start-ups, Pillow and ApartmentJet to help landlords turn apartments into short-term rentals. 

 

With all this activity in the alternate residential space, we might even get a little concerned at what this might mean for the supply of “conventional” BTR!?  BTR is competing with the familiar for-sale development and increasingly senior living and care homes.  The increased demands of alternate hospitality might mean that BTR providers need to look at USL operators very seriously to maintain their bidding competitiveness.

 

From a design perspective, Geraghty Taylor has worked on projects where unit layouts have been conceived with the flexibility to easily accommodate splitting and sharing.

 

 

Remember Design Differently

 

 

#BTR #BuildtoRent #Brand #Brandbeforebuilding

BTR – The New Anchor Tenant

In recent articles, we have looked deeply into the BTR sector in some analytical detail. We have also shown how BTR can act as a strong catalyst to broader urban redevelopment. But in this piece, we consider how modern Build to Rent residential development can potentially help alleviate one of the pressing urban dilemmas of today; the decline of the traditional high street and shopping centre.

 

The demise of the high street is ‘internet linked’, with the decreased need to leave home and purchase goods. Can this loss of footfall, by having more people living centrally, close to or on top of the high street, create a new demand; albeit, potentially more orientated towards leisure and A3 uses?

 

Can residential become the new “anchor"?

 

For the last 50 years, the successful development of retail investments has been predicated on securing a big name retailer to act as a magnet, sitting in the centre or, better still, at either end of the high street or mall to attract customers. These "anchor" tenants drew crowds and created footfall for the benefit of the centre as a whole.

 

But the internet is putting pay to the old norms as goods are readily available, often more cheaply, online; why make that arduous journey to the shops?  See this in the context of the societal shift in the young from materialism to the desire for experience and you understand why the last 20 years has seen the growth in the catering, entertainment and leisure components of successful high streets and shopping centres. 

 

Where can retail go next to support dramatically declining in-store sales? Sure, more focus on the experience can help, but it comes at a price and not universally welcomed. Shopping centre landlords pass on any entertainment costs back to the retailers through the service charge, yet does the footfall generated by entertainment result in actual sales? Unfortunately, it’s not always the case.

 

Lateral thinkers are, therefore, now looking outside of the retail "box". Anchors were about footfall but what if we deliver that activity another way? Why not bring the consumers to the retailers by creating homes for them in the very vicinity of the stores?

 

The ‘death of the mall’ and the turn to Build to Rent has been a trend in the US for a while now. Global Apartment Advisors, whose build to rent roots originate from the US, has seen this become an established real estate play. Once-tired districts are being uplifted with new homes and crucially, the retail offer is being curated to the residents above, thus servicing both their needs but also the wider community too.

 

 

BTR avoids the pitfalls of “For sale" residential.

 

Tarnishing shiny retail Investments with problematic homeowners over them has been avoided like the plague in the past, and only incorporated when the planners demand it. Residents with gripes and moans and, more importantly, legal rights to hinder development and change have been kept far away from prime retail assets. But modern residential investment, in the guise of BTR, delivers active consumers with a vested interest in a vibrant community but with no individual frustrating-mechanism to scupper progress. In fact, if not actually the same investor, the owner of the residential investment will share similar aspirations for the vitality of the collective built environment as the retail investor.

 

So, once again, BTR avoids some of the pitfalls of earlier residential investment formats. But just like putting a shop at the base of residential development is no guarantee of its success, putting people above a shopping centre doesn't automatically create footfall and needs sensitive planning. This includes careful consideration of resident journeys but a revised outlook on the retail offer to provide an appropriate retail amenity that genuinely services the local area.

 

As GAA notes, from a development and funding perspective, the retail component of a project is becoming an ancillary use and the need to have blue-chip covenant strengths from your retail occupiers is no longer crucial. With residential income so sought after by institutional capital, and that income making up say 90% of the total rent roll, there is scope to allow less well known and local brands to move in, providing ever more authenticity and vibrancy to a neighbourhood.

 

The shop window effect will become ever more important

 

These guys don't even need to spend their cash in the store. Increasingly the shop window will become exactly that; an introduction to the goods of a company that is agnostic to where the purchase actually takes place - in-store or online. It has recently been reported that The White Company had opened a new store in Newcastle which traded ok but which drove an increase of 80% in associated local online sales. 

 

This all helps great “placemaking”

 

Realise too that all these additional people will also want entertaining, feeding, educating and access to leisure facilities which don't have to be in their own residential building, nor be exclusive to residents. They will support a more vibrant, holistic, urban environment, one which operates both during the day and the evening, unlike the often monoculture high streets and shopping centres of recent years.

 

These newly created hubs naturally serve the wider community too and so become a new feature to the cultural tapestry of the high street.

 

Your bottom line benefits too

 

This is all very good news for the currently beleaguered retail investor. BTR both acts as a catalyst to improved retail performance but is a very valuable asset in its own right adding to their pressurised bottom line, if developed effectively.

 

This latest chart from investment market analysts, Real Capital Analytics (RCA) shows that residential investment is gaining in appeal, in direct contrast to the waning of the retail market, and underpins new spending in the sector.

 

 

 

...and some are already profiting

 

One of the largest projects announced so far is the upcoming £245 million development of the Harvey Centre in Harlow town centre. Addington Capital and Tristan secured planning permission  to provide 447 new homes and have sold the investment on to Strawberry Star Group.  A substantial part of the centre will be demolished and four new buildings will be constructed, ranging from 3 to 16 storeys, arranged around landscaped public spaces to provide open-air boulevard shopping. Addington and Tristan’s bold move, swopping retail space for residential, demonstrates the thinking lying behind the trends shown in the RCA findings.

 

A further example is New River securing permission to develop 227 units in Cowley, Oxfordshire at their 1960’s-built Templars Square shopping centre. They have identified the need to upgrade the centre but also the opportunity to meet the demand for new homes in Oxford and add much-needed choice of restaurants and hotels. They will rationalise the existing car parking and use airspace above the centre.

 

Hammerson is using permitted development rights to deliver new residential from former office space at Cabot Circus and Broadmeads, Bristol, as PLATFORM_ have done in Crawley town centre where an existing office building has been repurposed to deliver 185 units.

 

Spread the word...BTR is good for your local town centre

 

GAA, believe that regional town centres can have a viable future and generate strong returns with a collaborative approach between residential and commercial.  They argue that this has hitherto never been possible with the traditional “for sale” model for residential.  They aim to increase the awareness of owners and investors and to demonstrate to Councils why they should positively support Build to Rent, both at the Local Plan making and scheme decision making stages. 

 

At Geraghty Taylor we are actively involved in schemes to integrate BTR into existing assets as well as developing new assets in existing retail environments. We see this as a welcome development in creating rejuvenated town centres.

 

Create differently

 

#BTR #BuildtoRent #Brand #Brandbeforebuilding

 

 

Our thanks go to Dominic Martin of Global Apartment Advisors, (GAA) for his input into the preparation of this article.

 

 

In recent articles, we have looked deeply into the BTR sector in some analytical detail. We have also shown how BTR can act as a strong catalyst to broader urban redevelopment. But in this piece, we consider how modern Build to Rent residential development can potentially help alleviate one of the pressing urban dilemmas of today; the decline of the traditional high street and shopping centre.

 

The demise of the high street is ‘internet linked’, with the decreased need to leave home and purchase goods. Can this loss of footfall, by having more people living centrally, close to or on top of the high street, create a new demand; albeit, potentially more orientated towards leisure and A3 uses?

 

Can residential become the new “anchor"?

 

For the last 50 years, the successful development of retail investments has been predicated on securing a big name retailer to act as a magnet, sitting in the centre or, better still, at either end of the high street or mall to attract customers. These "anchor" tenants drew crowds and created footfall for the benefit of the centre as a whole.

 

But the internet is putting pay to the old norms as goods are readily available, often more cheaply, online; why make that arduous journey to the shops?  See this in the context of the societal shift in the young from materialism to the desire for experience and you understand why the last 20 years has seen the growth in the catering, entertainment and leisure components of successful high streets and shopping centres. 

 

Where can retail go next to support dramatically declining in-store sales? Sure, more focus on the experience can help, but it comes at a price and not universally welcomed. Shopping centre landlords pass on any entertainment costs back to the retailers through the service charge, yet does the footfall generated by entertainment result in actual sales? Unfortunately, it’s not always the case.

 

Lateral thinkers are, therefore, now looking outside of the retail "box". Anchors were about footfall but what if we deliver that activity another way? Why not bring the consumers to the retailers by creating homes for them in the very vicinity of the stores?

 

The ‘death of the mall’ and the turn to Build to Rent has been a trend in the US for a while now. Global Apartment Advisors, whose build to rent roots originate from the US, has seen this become an established real estate play. Once-tired districts are being uplifted with new homes and crucially, the retail offer is being curated to the residents above, thus servicing both their needs but also the wider community too.

 

 

BTR avoids the pitfalls of “For sale" residential.

 

Tarnishing shiny retail Investments with problematic homeowners over them has been avoided like the plague in the past, and only incorporated when the planners demand it. Residents with gripes and moans and, more importantly, legal rights to hinder development and change have been kept far away from prime retail assets. But modern residential investment, in the guise of BTR, delivers active consumers with a vested interest in a vibrant community but with no individual frustrating-mechanism to scupper progress. In fact, if not actually the same investor, the owner of the residential investment will share similar aspirations for the vitality of the collective built environment as the retail investor.

 

So, once again, BTR avoids some of the pitfalls of earlier residential investment formats. But just like putting a shop at the base of residential development is no guarantee of its success, putting people above a shopping centre doesn't automatically create footfall and needs sensitive planning. This includes careful consideration of resident journeys but a revised outlook on the retail offer to provide an appropriate retail amenity that genuinely services the local area.

 

As GAA notes, from a development and funding perspective, the retail component of a project is becoming an ancillary use and the need to have blue-chip covenant strengths from your retail occupiers is no longer crucial. With residential income so sought after by institutional capital, and that income making up say 90% of the total rent roll, there is scope to allow less well known and local brands to move in, providing ever more authenticity and vibrancy to a neighbourhood.

 

The shop window effect will become ever more important

 

These guys don't even need to spend their cash in the store. Increasingly the shop window will become exactly that; an introduction to the goods of a company that is agnostic to where the purchase actually takes place - in-store or online. It has recently been reported that The White Company had opened a new store in Newcastle which traded ok but which drove an increase of 80% in associated local online sales. 

 

This all helps great “placemaking”

 

Realise too that all these additional people will also want entertaining, feeding, educating and access to leisure facilities which don't have to be in their own residential building, nor be exclusive to residents. They will support a more vibrant, holistic, urban environment, one which operates both during the day and the evening, unlike the often monoculture high streets and shopping centres of recent years.

 

These newly created hubs naturally serve the wider community too and so become a new feature to the cultural tapestry of the high street.

 

Your bottom line benefits too

 

This is all very good news for the currently beleaguered retail investor. BTR both acts as a catalyst to improved retail performance but is a very valuable asset in its own right adding to their pressurised bottom line, if developed effectively.

 

This latest chart from investment market analysts, Real Capital Analytics (RCA) shows that residential investment is gaining in appeal, in direct contrast to the waning of the retail market, and underpins new spending in the sector.

 

Click above to view a larger image...

 

 

...and some are already profiting

 

One of the largest projects announced so far is the upcoming £245 million development of the Harvey Centre in Harlow town centre. Addington Capital and Tristan secured planning permission  to provide 447 new homes and have sold the investment on to Strawberry Star Group.  A substantial part of the centre will be demolished and four new buildings will be constructed, ranging from 3 to 16 storeys, arranged around landscaped public spaces to provide open-air boulevard shopping. Addington and Tristan’s bold move, swopping retail space for residential, demonstrates the thinking lying behind the trends shown in the RCA findings.

 

A further example is New River securing permission to develop 227 units in Cowley, Oxfordshire at their 1960’s-built Templars Square shopping centre. They have identified the need to upgrade the centre but also the opportunity to meet the demand for new homes in Oxford and add much-needed choice of restaurants and hotels. They will rationalise the existing car parking and use airspace above the centre.

 

Hammerson is using permitted development rights to deliver new residential from former office space at Cabot Circus and Broadmeads, Bristol, as PLATFORM_ have done in Crawley town centre where an existing office building has been repurposed to deliver 185 units.

 

Spread the word...BTR is good for your local town centre

 

GAA, believe that regional town centres can have a viable future and generate strong returns with a collaborative approach between residential and commercial.  They argue that this has hitherto never been possible with the traditional “for sale” model for residential.  They aim to increase the awareness of owners and investors and to demonstrate to Councils why they should positively support Build to Rent, both at the Local Plan making and scheme decision making stages. 

 

At Geraghty Taylor we are actively involved in schemes to integrate BTR into existing assets as well as developing new assets in existing retail environments. We see this as a welcome development in creating rejuvenated town centres.

 

Create differently

 

#BTR #BuildtoRent #Brand #Brandbeforebuilding

 

 

Our thanks go to Dominic Martin of Global Apartment Advisors, (GAA) for his input into the preparation of this article.

 

 

Beyond the Home Hub: The future of Wi-Fi in Build-to-Rent

High-quality internet access is by far and away the number one amenity for occupiers of BTR and student schemes.  Only a few months’ ago, WiredScore, the connectivity rating service, chose to launch its WiredScore Home certificate aimed at build-to-rent landlords, with 4,000 units already under review. 

It comes as no surprise really. I bet I am not the only one returning from this year’s family holiday with the sounds of phrases like these still ringing in my eyes:

  • “Oh no! I’m out of data!”
  • “Can I tether to you?”
  • “Are you hot-spotting?”; and even
  • “We’re not going there unless it has Wi-Fi!”

It’s not just the teenagers either! Good internet connection has become a basic requirement of life for those of us who are used to it.  This latest article, prepared for us by Darren Henwood of Glide, takes a close look at how the provision of best-in-class connectivity is changing for multi-occupier schemes and introduces the idea of Pervasive Wi-Fi.

 

The humble router has been the backbone of home broadband and Wi-Fi delivery for a generation.  As advances in technology and residential living converge, it’s time for a new approach to Wi-Fi and a new philosophy with futuristic experiences for residents and practical benefits for landlords.  

 

Over the last 20 years, we have come to depend on a small black or white box.  In 2019, this device still acts as a modem to connect us to an internet provider. It still performs routing which allows all of our devices to join a network and it still beams Wi-Fi around our homes.  The outdated technology was designed to work in the two-up two-down majority of UK homes and nothing much has changed.

 

Routers are still poorly positioned by Internet Service Providers (ISPs) or naive residents, they still need to be switched off and on again and firmware needs to be upgraded. Wireless performance is limited by interference and building materials and coverage is patchy.  The fixed port is disappearing, plugging devices directly into the router will become defunct and all at a time when people rely on mobile devices and mobile connectivity. 

 

Build-to-Rent is an emerging brand of residential development specifically designed for renting, managed by specialist operators who will look to evolve the provision of resident services like Wi-Fi. In this competitive market, developers and operators need to differentiate their properties to maintain 100% occupancy and profitability.  If people are to abandon the aspiration of owning their own home and commit to a lifestyle of renting, significant improvements to resident services and well-being will be needed to make Build-to-Rent a popular choice.

 

96% of tenants find going without the internet to be the most frustrating part of moving home so we know fast, reliable Wi-Fi is a key technology.

 

The future of Wi-Fi is Managed Pervasive Wi-Fi and represents an alternative approach; one that guarantees coverage over every inch of an apartment and spells the end of the familiar home router.  Pervasive Wi-Fi is invisible, on all of the time and it works, offering significant benefits to both resident and landlord without sacrificing privacy and security.  

 

Smart Home solutions like smart thermostats, smart lighting, smart metering and environmental controls can all be installed before residents move in. Services managed by the landlord but used by the resident with no cumbersome router and now, not just for tech-savvy homeowners but rather installed as standard. This means zero hassle for residents which is the main reason many are considering moving to a Build-to-Rent property.

 

Landlords face similar challenges with outdated building systems and devices for the provision of utilities. What does Pervasive Wi-Fi mean for building services?

 

Pervasive Wi-Fi will extend the reach and range of managed services available to landlords with new tools to efficiently manage properties.  Solutions, like utility sub-meters that automatically and accurately measure consumption and automatically bill residents, introduce a new level of efficiency and fairness.  Centrally managed thermostats mean the heating can be switched off for unoccupied apartments and ambient temperature settings for communal spaces used to maintain the green credentials of the property. Introducing new control systems over Pervasive Wi-Fi will be more cost effective and easier to introduce than traditional infrastructure.  

 

Living in Build-to-Rent is a lifestyle choice. Build-to-Rent should not just deliver spaces to sleep in but environments that enhance the lifestyle of the renter. Pervasive Wi-Fi means connected environments extend beyond the front door to the gym, the cinema room, yoga studio, cafes, parking lot and communal outdoor spaces so there is no limitation on the ambition of landlords to impress prospective residents.  

 

Extending the management of Wi-Fi into apartments and communal spaces means the level of service, coverage and speed is now the responsibility of the managed Wi-Fi provider.  Introducing a standard and benchmarking Wi-Fi coverage ensures service quality comparable with the best performing apartments across a portfolio.  This is analysis that leading operators can draw upon that their competition cannot and with a wider range of landlord services to help find additional cost savings and optimise coverage, the Build-to-Rent proposition continues to significantly differentiate properties from the rest of the residential property market. This added freedom also empowers operators to extract every discernible operational efficiency from their network.

 

What does 5G mean for the future of the Home Hub?

 

5G is the next generation of mobile networks to roll out across the UK, initially in major cities and deployed from a variety of familiar UK providers. 5G will be faster and more reliable, with greater capacity and lower response times. With more speed and capacity comes exciting new consumer and business applications that could replace 3G, 4G or Wi-Fi infrastructure with 5G.  5G driverless cars, remote healthcare, holographic technology, 5G phones and drones may well depend on the 5G technology but is the ambition of replacing Wi-Fi in the home with 5G a reality?

 

Advocates will say 5G will replace expensive fibre broadband infrastructure. This means no need for cables under our streets and into our homes. 5G will be beamed wirelessly into our 5G Home-Hub or wirelessly into our Smart Devices. Residents will deal directly with their 5G provider, likely the same provider as their mobile phone. Landlords of apartment blocks will have a separate 5G commercial agreement to provide for back office services and communal spaces.  Regrettably, 5G providers will face the same challenges as with 3G and 4G. The technology can’t penetrate every building material which means coverage will always be unpredictable.  5G can’t defy physics and the costs to guarantee the same coverage as Wi-Fi massively outweigh the benefits.

 

Mobile data is by some margin the most expensive. Residents will depend on 5G data services being available and deliver capacity to a range of increasingly bandwidth hungry devices like Ultra High Definition (UHD) streaming and online gaming. In the current market, the best residential 5G deals are approximately £75 for 100GB per month.  It’s possible that this would suffice for a typical online gamer but the comparable fibre services are uncapped, significantly more affordable and reliable and future-proof for the next generation of technology.

 

5G is fantastic technology but the rollout will be staggered. 5G will not provide as much resilience and no redundancy and will neither be as reliable or future-proof to meet the raising popularity of gigabit fibre broadband. This makes running critical building systems on 5G a risk and limits the appeal of a rental property to the next generation of renters.  

 

Every 5 years the headline speed offered by leading residential broadband ISPs goes up by a factor of 10. Significantly, 100GBs of capped data usage will last 13 minutes on a capped gigabit product. Replacing the fixed asset Wi-Fi infrastructure with 5G mobile data for a portfolio of properties would significantly increase the operating cost of the buildings. If you are investing or operating in a 25-year property asset why would you put in anything else other than fibre?

 

What does Wi-Fi 6 mean for the future of the Home Hub?

 

Wi-Fi 6 or 802.11ax Wi-Fi is the sixth generation and standard of Wi-Fi technology designed to support four times more devices on a crowded network and a wider Wi-Fi channel that will make Wi-Fi faster. 5G and Wi-Fi 6 are built on the same technology so all the benefits that 5G promises are already available at a fraction of the cost. 

 

Home broadband providers are already promising gigabit services to every home in just a few years.  Fibre broadband has unlimited capacity and is future-proof for at least the next 25 years so will support this evolution. Comparatively, the cost profile of 5G data services will be too much for a typical user afford.  For the majority, all roads lead to fibre broadband and Pervasive Wi-Fi as a common-sense solution.  Don’t believe the 5G hype.

 

Geraghty Taylor has appreciated that internet connectivity is the number one amenity service for BTR since we first started designing schemes. The WiredScore rating is a welcome independent review for occupiers and investors alike.  It is crucial to keep on top of rapid technology changes and design buildings than can accommodate future advances.

 

Create differently

 

#BTR #BuildtoRent #Brand #Brandbeforebuilding

 

Our thanks to the Glide Group team for preparing this review.  If you have any questions relating to the article please get in touch with Darren Henwood

BTR Ecosystems Part II

Last week, in Part 1 of this two-part series, we talked about the ecosystems within the overall Private Rented Sector market place.  This week we take a look at the business ecosystems that operate within a larger BTR scheme. Many operators now see the minimum size of a BTR scheme as well above 150 units. Moreover, they would prefer schemes of 500 units and above. In the States it is not uncommon to see buildings with in excess of 1,000 units. In the UK, complexes like East Village and Wembley Park now boast more than 3,000 residences.

 

The sheer number of occupiers, all on individual leases, inevitably means that there will be a spread of rents achieved, on similarly configured units, due to timing of letting and market conditions, even within the same building or complex. What kind of spread should an operator look for?

 

Voids are a necessary lubricant for growth

 

In any scheme or village, there will be a number of voids or vacant units. Conventional wisdom says that the manager should minimise these but more experienced operators appreciate that these represent the oil in the machine that gives the opportunity to continually refresh the units and set new rental highs, improving the general rental “tone” of the building. In addition, there are new businesses like Staykeepers and Lavanda who offer to actively manage very short term rentals at premium rents using accommodation platforms like Airbnb and Bookings.com. This can be on behalf of the operator or, indeed, on behalf of the resident with the operator's consent. This adds another dimension to a part of the BTR schemes rental offering. At the other end of the scale, there may also be longer leases which sit at lower rental levels for some time but which can have a positive impact on the overall risk profile.

 

So management becomes a balancing act and the profile of rents across the scheme or estate will resemble the spectrum of rents across the market that we saw last week. But there will be a normal or stabilised rent which will predominate and set the tone for the scheme. Around this there will be some who are benefiting from lower rents and some who are sitting at higher levels. 

 

How much of your scheme should sit at the normal or “stabilised” rent?

 

Multifamily operators in the States are quite willing to accept a void rate in a scheme in excess of 5% of total units in order to refresh, renew and set new rental levels. They are also comfortable to have only 60% to 70% of their occupiers paying the stabilised rental level. Much more than this and they start to feel that they are undervaluing their asset; much less than this and they worry that they are overvaluing the accommodation and that they risk losing occupiers if the market moves against them.

 

One multifamily operator in the States who achieves these thresholds gave us a very good insight to the profile of his occupiers. In his experience, he would normally expect to want to actively get rid of some 10% of his occupiers at any point in time because they were proving troublesome in one way or another. At the other end of the scale, he would describe 30% of his residence as “Happy as Larry” and likely to stay under most reasonable circumstances. Inevitably, another 30% would be looking to move but due to changes in their own life-circumstances like job changes, marriage or new or growing children. This leaves the remaining 30% being the floating occupiers who would consider moving on purely financial or opportunistic grounds. It is these floating residents that the operator has to be acutely aware of in any rent renegotiations.

 

 

 

Maybe we aren’t dealing with a simple demand curve...

 

Let’s get technical for a moment.  A normal demand curve would suggest that price changes would have a different impact on the number of lettings depending on the level of rents.  A small price change at the high end of the rent scale has a far more dramatic impact on occupancy levels than it would have at the low end.  However, we see there is a degree of price inelasticity in the BTR model. The residents are not just simple price takers. They will not automatically move to the next most appropriate scheme if it offers a slightly better price. They have to vote with their feet and there are sunken costs representing the expense and hassle of moving. In this case, a price change may have less impact at certain points and as it affects our different resident groups and so we may not have a smooth curve.

 

It may be that we have a graph with two distinct sectors with price changes impacting substantially differently at different rent levels.  The break-point could well be around the stabilised level.

 

 

 

 

Occupiers, in the States at least, seem generally comfortable accepting small rent rises on renewal

This operator's experience over time has shown him, anecdotally, that price changes of less than 8% do not tend to result in an exodus of many sitting residents. More limited increases of inflation plus a percent or two are usually quite acceptable to the majority.

Investors have criticised scheme promoters in the UK in the past for suggesting that there will be continual rental growth in the sector to support its otherwise low initial yield. This evidence from the States seems to suggest there may be some support for projections that anticipate a low level of sustained rental increase in the long term; with obvious cycles given market dynamics.

 

We would all benefit from shared information

 

As a young market, BTR information is very much in the hands of the operators and pretty jealously guarded.   It would be nice to think that drawing on experiences in the other sectors; we might see some pooling of non-sensitive information for the benefit and growth of the market generally.

 

  • What are the market void rates and how do they vary across schemes?
  • What percentage of BTR is reserved for ultra short-term lets?
  • How many operators are prepared to allow residents to short-let their units and how?
  • How do we assess the “stabilised” rent?
  • What is the lease length profile of the market and how is it changing?

 

All these features would add to our understanding and help with setting strategies for individual schemes.  Ultimately, the industry also needs information on the cost side as well to help answer the inevitable question of what is the gross to net leakage.

 

These last two papers have shown that BTR is far from a simple market with a standard product renting for a similar price.  There are complex ecosystems at the macro level across the market and also at the micro level within schemes themselves.  Better understanding of these systems will lead to happy customers, successful operators and a more effective market.

 

Geraghty Taylor.

 

Create differently

 

#BTR #BuildtoRent #Brand #Brandbeforebuilding

Last week, in Part 1 of this two-part series, we talked about the ecosystems within the overall Private Rented Sector market place.  This week we take a look at the business ecosystems that operate within a larger BTR scheme. Many operators now see the minimum size of a BTR scheme as well above 150 units. Moreover, they would prefer schemes of 500 units and above. In the States it is not uncommon to see buildings with in excess of 1,000 units. In the UK, complexes like East Village and Wembley Park now boast more than 3,000 residences.

 

The sheer number of occupiers, all on individual leases, inevitably means that there will be a spread of rents achieved, on similarly configured units, due to timing of letting and market conditions, even within the same building or complex. What kind of spread should an operator look for?

 

Voids are a necessary lubricant for growth

 

In any scheme or village, there will be a number of voids or vacant units. Conventional wisdom says that the manager should minimise these but more experienced operators appreciate that these represent the oil in the machine that gives the opportunity to continually refresh the units and set new rental highs, improving the general rental “tone” of the building. In addition, there are new businesses like Staykeepers and Lavanda who offer to actively manage very short term rentals at premium rents using accommodation platforms like Airbnb and Bookings.com. This can be on behalf of the operator or, indeed, on behalf of the resident with the operator's consent. This adds another dimension to a part of the BTR schemes rental offering. At the other end of the scale, there may also be longer leases which sit at lower rental levels for some time but which can have a positive impact on the overall risk profile.

 

So management becomes a balancing act and the profile of rents across the scheme or estate will resemble the spectrum of rents across the market that we saw last week. But there will be a normal or stabilised rent which will predominate and set the tone for the scheme. Around this there will be some who are benefiting from lower rents and some who are sitting at higher levels. 

 

How much of your scheme should sit at the normal or “stabilised” rent?

 

Multifamily operators in the States are quite willing to accept a void rate in a scheme in excess of 5% of total units in order to refresh, renew and set new rental levels. They are also comfortable to have only 60% to 70% of their occupiers paying the stabilised rental level. Much more than this and they start to feel that they are undervaluing their asset; much less than this and they worry that they are overvaluing the accommodation and that they risk losing occupiers if the market moves against them.

 

One multifamily operator in the States who achieves these thresholds gave us a very good insight to the profile of his occupiers. In his experience, he would normally expect to want to actively get rid of some 10% of his occupiers at any point in time because they were proving troublesome in one way or another. At the other end of the scale, he would describe 30% of his residence as “Happy as Larry” and likely to stay under most reasonable circumstances. Inevitably, another 30% would be looking to move but due to changes in their own life-circumstances like job changes, marriage or new or growing children. This leaves the remaining 30% being the floating occupiers who would consider moving on purely financial or opportunistic grounds. It is these floating residents that the operator has to be acutely aware of in any rent renegotiations.

 

 

 

Maybe we aren’t dealing with a simple demand curve...

 

Let’s get technical for a moment.  A normal demand curve would suggest that price changes would have a different impact on the number of lettings depending on the level of rents.  A small price change at the high end of the rent scale has a far more dramatic impact on occupancy levels than it would have at the low end.  However, we see there is a degree of price inelasticity in the BTR model. The residents are not just simple price takers. They will not automatically move to the next most appropriate scheme if it offers a slightly better price. They have to vote with their feet and there are sunken costs representing the expense and hassle of moving. In this case, a price change may have less impact at certain points and as it affects our different resident groups and so we may not have a smooth curve.

 

It may be that we have a graph with two distinct sectors with price changes impacting substantially differently at different rent levels.  The break-point could well be around the stabilised level.

 

 

 

 

Occupiers, in the States at least, seem generally comfortable accepting small rent rises on renewal

This operator's experience over time has shown him, anecdotally, that price changes of less than 8% do not tend to result in an exodus of many sitting residents. More limited increases of inflation plus a percent or two are usually quite acceptable to the majority.

Investors have criticised scheme promoters in the UK in the past for suggesting that there will be continual rental growth in the sector to support its otherwise low initial yield. This evidence from the States seems to suggest there may be some support for projections that anticipate a low level of sustained rental increase in the long term; with obvious cycles given market dynamics.

 

We would all benefit from shared information

 

As a young market, BTR information is very much in the hands of the operators and pretty jealously guarded.   It would be nice to think that drawing on experiences in the other sectors; we might see some pooling of non-sensitive information for the benefit and growth of the market generally.

 

  • What are the market void rates and how do they vary across schemes?
  • What percentage of BTR is reserved for ultra short-term lets?
  • How many operators are prepared to allow residents to short-let their units and how?
  • How do we assess the “stabilised” rent?
  • What is the lease length profile of the market and how is it changing?

 

All these features would add to our understanding and help with setting strategies for individual schemes.  Ultimately, the industry also needs information on the cost side as well to help answer the inevitable question of what is the gross to net leakage.

 

These last two papers have shown that BTR is far from a simple market with a standard product renting for a similar price.  There are complex ecosystems at the macro level across the market and also at the micro level within schemes themselves.  Better understanding of these systems will lead to happy customers, successful operators and a more effective market.

 

Geraghty Taylor.

 

Create differently

 

#BTR #BuildtoRent #Brand #Brandbeforebuilding

BTR Ecosystems

 

 

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.

 

 

Will BTR modernise residential construction?

The customer-focused culture of BTR is challenging us to rethink the rental market; now it looks set to disrupt residential construction and modernise its delivery. Offsite assembly suits the high quality and rapid deployment requirements of Build to Rent. An increasing number of new BTR developers are exploring the offsite route and some are lucky enough to secure supply in a somewhat low capacity market.

 

Major players like Greystar are bringing forward schemes in Croydon and Greenford which involve the delivery and assembly of thousands of modular units.  So is this the way forward? The approach suggests a shift towards vertical integration with greater control of the design and delivery of the product being sought by experienced BTR players. The benefits are better product quality, predictability and supply chain control, which together can help to reduce cost and risk. BUT it is not always as easy as aligning design and procurement. When developers approach their investor’s investment committee or their bank for construction funding, they are met with questions about:

  • the procurement risk of tying their product delivery to the output of a single supplier
  • the risk, in a restricted market, that the product supply might not be picked up by a new supplier in the event of the corporate failure of the original off-site manufacturer....and that the scheme has to start again from scratch
  • the problem that these considerations pose to obtaining contract  insurance for the build contract at all; and
  • the fact that the industry's own efforts with BOPAS accreditation has only resulted in some 70 accredited businesses so far.

 

And so, all too often, the developer opts for a traditional build... and the off-site industry misses out on revenue that could help it expand to meet the growing demand. However this is not always the case, and despite some of the risks, progressive BTR companies recognise that in building a BTR portfolio, it needs to adopt different approaches to design and procurement.

 

Just this month, legal experts, Trowers Hamlin released a collaborative report entitled “Funding Barriers to offsite housing – Separating fact from fiction”.  They conclude that there is no reason why appropriately delivered offsite should be treated any less favorably than traditionally built homes for the purpose of charging.  They should not be viewed as depreciating assets. Indeed, there is evidence that manufactured homes represent an opportunity to achieve a design life that exceeds that of traditionally built homes. But traditional approaches to performance security must adapt to allow for the specific features of offsiting to deliver confidence.

 

Shaun Grainger of PIB Insurance Brokers has some very interesting comments about his company’s proactive approach to underwriting offsite construction. Ultimately, this is the key to securing the necessary construction and investment funding.

 

Our take on his view can foresee a world where insurance premiums are actually lower for offsite construction because the insurer is underwriting a “product” that is itself already BOPAS accredited, reducing costly on-site inspecting.  Greater control and clarity should reduce claims but to get there the industry must tackle specific concerns of safety and durability in use and added risks like those in transportation. 

 

Let’s set the scene by looking at the recent development of the off-site industry.

 

Like every market innovation new names and definitions abound; so you will hear Offsite Construction, Design for Manufacture and Assembly (DfMA) and Modern Methods of Construction (MMC) used pretty interchangeably.  The whole industry is not as recent as you may think.  In reality, it has had a long and laboured development. Early work was done in the late 1990’s which led to the “Rethinking Construction report” - often referred to as the Egan report.  Interest, most recently, has been crystallised by Mark Farmer’s review of the construction labour market in the UK for the Ministry of Housing, Communities & Local Government (MHCLG), known as, “Modernise or Die”.  This has found widespread resonance in an industry struggling with mistrust, poor value, poor delivery and poor quality, along with a legendary inability to meet program or budget.  The house building industry today, for instance, is required to increase output by 50% just to meet Government targets, but set this against a backdrop of a workforce forecast to decrease by 25% to 2026.  We currently aren’t growing new builders!

 

Offsite finds a new champion

 

Offsite at its simplest, is a system which is based on a kit of parts, produced in a factory environment, with the aim to assemble this high quality product quickly and efficiently on site.  The process has found favour already with sectors that have a very repeatable product like the hotel and student accommodation industries.  There are many solutions ranging from full volumetric modular which literally allows you to crane in a room to more componentised solutions.  The MHCLG released its “MMC definition framework” in March which gives a very helpful introduction to the entire spectrum. See below:

 

 

BTR schemes aspire to high quality and robustness in the longer term and they have significant levels of repetition with relatively small variations between unit types on offer. This aligns with brand placement, volume production, predictably and the capacity to quickly turn capital into revenue.  To do this, systems must be standardised across schemes to maximise buying power and minimise maintenance costs, delivering Facilities Management efficiency.  Offsite seems to have found its new champion; look at these key matches:

 

 

Production: as with any mass produced items, once you have set your production line up, you want it running with minimum disruption at ‘full tilt’; you want your systems, assemblies and finishes to be standardised and efficient - just as you would with BTR - and you want that speed of output-to-site to allow the capital investment to generate income quickly.

 

Risk management: Once the system is created and tested, the risk so prevalent with traditional construction - where every scheme is a prototype - is virtually eliminated. If it worked under test on one scheme, with equivalent parameters there is no reason for it not to work on the next, or the one after that...

 

Longevity: The use of repetitive, tested detailing and predictable servicing means that you know exactly how and where to maintain the building; you can be assured that the traditional construction industry’s penchant for making it up as you go has been avoided... in effect you have taken your building away from a poorly supervised site environment into a managed, safe, supervised environment in a factory where Quality Assurance can be rigorous and continuous. Further supporting this is the BOPAS scheme, led by major insurers, the OffSite industry and other key stakeholders which provides surety of quality, longevity and production quality.

 

Design quality: No one wants boring buildings, or repetitious “prefabs” so most schemes are hybridised to a greater or lesser extent, allowing different systems to exploit their key benefits, delivering exciting, good looking buildings which reflect the brand and quality of their owners. 

 

Once the strategic decision to use off-siting has been made, we at Geraghty Taylor focus on product definition, appropriate standardisation and supply chain management.  We look to design the Mods, Pods and Cogs  (room modules, pod components like kitchens and bathrooms and micro components like utility cupboards) that will fit together to create the building.

 

Leading to a new generation of construction employment

 

The move to factory based production brings with it some key advantages for growth.  The appeal of this environment over the cold, wet, site-based employment of traditional build is clear.  It can appeal to a wider cross section of employees, both by age and gender.  It is also digitally empowered so can literally “key” into the career aspirations of the young.  You might be interested to know that both Lego and IKEA are looking to “disrupt” in this space.

 

BUT managing a growth path is not without its difficulties.  The UK market is dominated by a handful of systems and capacity to deliver at peak has been questioned.  Securing your supply can very quickly be difficult in strong markets where there are insufficient “fall-back” suppliers of sufficient quality.

 

The quality point is important, as the “prefab” of old carried with it concerns about robustness and finance, which, in the form of mortgages, was often limited.  Insurers are asking ‘Will these buildings last’?  The industry is convinced they will and has created its own accreditation system; BOPAS.  This is a risk-based evaluation which demonstrates that homes built from non-traditional methods & materials will stand the test of time for at least 60 years.  But there are currently fewer than 70 BOPAS accredited operations and when you see the reduced options available for building at height, you can appreciate why insurers worry that the developers are placing a lot of risk with one supplier.  But isn’t this just the same as a contract with a traditional main contractor over whom you have little real control.

To address this, volume consumers are developing their own systems like L&G’s  and large international developers are simply extending their supply routes from their existing domestic or international procurement centres into the UK.  Geraghty Taylor has just completed a full modular design plan for a major client wanting to adapt their own domestic model to the UK, or you could say design “British multifamily”.  They will look to deploy 10,000 units over the next 5 years or so and achieve substantial cost savings due to the volume.

 

It is clear that the Government have identified the need to support and encourage the sector.  There are grants and funding available and the initiatives of the MHCLG through the Construction Leadership Council are invaluable.

 

 Buildoffsite is an organisation set up to promote the adoption of offsite solutions. It’s membership include Developers, Contractors, Consultants and Suppliers and it is an excellent source of information for all aspects of offsite strategies and technical solutions.  Their recently created BTR group aims to promote offsite solutions specifically to the BTR industry. 

 

It is generally accepted that Construction needs to be modernised and this process is already underway. There are going to be challenges along the way, but  BTR presents a significant opportunity for our new sector to drive meaningful, technology-rich change into the construction industry through offsite solutions. To be successful all parties will need to co-operate to ensure delivery of the bright ambitions of BTR.

 

Offsite thinking is in Geraghty Taylor’s DNA and we always design with offsite in mind.

 

Geraghty Taylor. Create differently

 

 

#BTR #BuildtoRent #Brand #Brandbeforebuilding

The customer-focused culture of BTR is challenging us to rethink the rental market; now it looks set to disrupt residential construction and modernise its delivery. Offsite assembly suits the high quality and rapid deployment requirements of Build to Rent. An increasing number of new BTR developers are exploring the offsite route and some are lucky enough to secure supply in a somewhat low capacity market.

 

Major players like Greystar are bringing forward schemes in Croydon and Greenford which involve the delivery and assembly of thousands of modular units.  So is this the way forward? The approach suggests a shift towards vertical integration with greater control of the design and delivery of the product being sought by experienced BTR players. The benefits are better product quality, predictability and supply chain control, which together can help to reduce cost and risk. BUT it is not always as easy as aligning design and procurement. When developers approach their investor’s investment committee or their bank for construction funding, they are met with questions about:

  • the procurement risk of tying their product delivery to the output of a single supplier
  • the risk, in a restricted market, that the product supply might not be picked up by a new supplier in the event of the corporate failure of the original off-site manufacturer....and that the scheme has to start again from scratch
  • the problem that these considerations pose to obtaining contract  insurance for the build contract at all; and
  • the fact that the industry's own efforts with BOPAS accreditation has only resulted in some 70 accredited businesses so far.

 

And so, all too often, the developer opts for a traditional build... and the off-site industry misses out on revenue that could help it expand to meet the growing demand. However this is not always the case, and despite some of the risks, progressive BTR companies recognise that in building a BTR portfolio, it needs to adopt different approaches to design and procurement.

 

Just this month, legal experts, Trowers Hamlin released a collaborative report entitled “Funding Barriers to offsite housing – Separating fact from fiction”.  They conclude that there is no reason why appropriately delivered offsite should be treated any less favorably than traditionally built homes for the purpose of charging.  They should not be viewed as depreciating assets. Indeed, there is evidence that manufactured homes represent an opportunity to achieve a design life that exceeds that of traditionally built homes. But traditional approaches to performance security must adapt to allow for the specific features of offsiting to deliver confidence.

 

Shaun Grainger of PIB Insurance Brokers has some very interesting comments about his company’s proactive approach to underwriting offsite construction. Ultimately, this is the key to securing the necessary construction and investment funding.

 

Our take on his view can foresee a world where insurance premiums are actually lower for offsite construction because the insurer is underwriting a “product” that is itself already BOPAS accredited, reducing costly on-site inspecting.  Greater control and clarity should reduce claims but to get there the industry must tackle specific concerns of safety and durability in use and added risks like those in transportation. 

 

Let’s set the scene by looking at the recent development of the off-site industry.

 

Like every market innovation new names and definitions abound; so you will hear Offsite Construction, Design for Manufacture and Assembly (DfMA) and Modern Methods of Construction (MMC) used pretty interchangeably.  The whole industry is not as recent as you may think.  In reality, it has had a long and laboured development. Early work was done in the late 1990’s which led to the “Rethinking Construction report” - often referred to as the Egan report.  Interest, most recently, has been crystallised by Mark Farmer’s review of the construction labour market in the UK for the Ministry of Housing, Communities & Local Government (MHCLG), known as, “Modernise or Die”.  This has found widespread resonance in an industry struggling with mistrust, poor value, poor delivery and poor quality, along with a legendary inability to meet program or budget.  The house building industry today, for instance, is required to increase output by 50% just to meet Government targets, but set this against a backdrop of a workforce forecast to decrease by 25% to 2026.  We currently aren’t growing new builders!

 

Offsite finds a new champion

 

Offsite at its simplest, is a system which is based on a kit of parts, produced in a factory environment, with the aim to assemble this high quality product quickly and efficiently on site.  The process has found favour already with sectors that have a very repeatable product like the hotel and student accommodation industries.  There are many solutions ranging from full volumetric modular which literally allows you to crane in a room to more componentised solutions.  The MHCLG released its “MMC definition framework” in March which gives a very helpful introduction to the entire spectrum. See below:

 

 

BTR schemes aspire to high quality and robustness in the longer term and they have significant levels of repetition with relatively small variations between unit types on offer. This aligns with brand placement, volume production, predictably and the capacity to quickly turn capital into revenue.  To do this, systems must be standardised across schemes to maximise buying power and minimise maintenance costs, delivering Facilities Management efficiency.  Offsite seems to have found its new champion; look at these key matches:

 

 

Production: as with any mass produced items, once you have set your production line up, you want it running with minimum disruption at ‘full tilt’; you want your systems, assemblies and finishes to be standardised and efficient - just as you would with BTR - and you want that speed of output-to-site to allow the capital investment to generate income quickly.

 

Risk management: Once the system is created and tested, the risk so prevalent with traditional construction - where every scheme is a prototype - is virtually eliminated. If it worked under test on one scheme, with equivalent parameters there is no reason for it not to work on the next, or the one after that...

 

Longevity: The use of repetitive, tested detailing and predictable servicing means that you know exactly how and where to maintain the building; you can be assured that the traditional construction industry’s penchant for making it up as you go has been avoided... in effect you have taken your building away from a poorly supervised site environment into a managed, safe, supervised environment in a factory where Quality Assurance can be rigorous and continuous. Further supporting this is the BOPAS scheme, led by major insurers, the OffSite industry and other key stakeholders which provides surety of quality, longevity and production quality.

 

Design quality: No one wants boring buildings, or repetitious “prefabs” so most schemes are hybridised to a greater or lesser extent, allowing different systems to exploit their key benefits, delivering exciting, good looking buildings which reflect the brand and quality of their owners. 

 

Once the strategic decision to use off-siting has been made, we at Geraghty Taylor focus on product definition, appropriate standardisation and supply chain management.  We look to design the Mods, Pods and Cogs  (room modules, pod components like kitchens and bathrooms and micro components like utility cupboards) that will fit together to create the building.

 

Leading to a new generation of construction employment

 

The move to factory based production brings with it some key advantages for growth.  The appeal of this environment over the cold, wet, site-based employment of traditional build is clear.  It can appeal to a wider cross section of employees, both by age and gender.  It is also digitally empowered so can literally “key” into the career aspirations of the young.  You might be interested to know that both Lego and IKEA are looking to “disrupt” in this space.

 

BUT managing a growth path is not without its difficulties.  The UK market is dominated by a handful of systems and capacity to deliver at peak has been questioned.  Securing your supply can very quickly be difficult in strong markets where there are insufficient “fall-back” suppliers of sufficient quality.

 

The quality point is important, as the “prefab” of old carried with it concerns about robustness and finance, which, in the form of mortgages, was often limited.  Insurers are asking ‘Will these buildings last’?  The industry is convinced they will and has created its own accreditation system; BOPAS.  This is a risk-based evaluation which demonstrates that homes built from non-traditional methods & materials will stand the test of time for at least 60 years.  But there are currently fewer than 70 BOPAS accredited operations and when you see the reduced options available for building at height, you can appreciate why insurers worry that the developers are placing a lot of risk with one supplier.  But isn’t this just the same as a contract with a traditional main contractor over whom you have little real control.

To address this, volume consumers are developing their own systems like L&G’s  and large international developers are simply extending their supply routes from their existing domestic or international procurement centres into the UK.  Geraghty Taylor has just completed a full modular design plan for a major client wanting to adapt their own domestic model to the UK, or you could say design “British multifamily”.  They will look to deploy 10,000 units over the next 5 years or so and achieve substantial cost savings due to the volume.

 

It is clear that the Government have identified the need to support and encourage the sector.  There are grants and funding available and the initiatives of the MHCLG through the Construction Leadership Council are invaluable.

 

 Buildoffsite is an organisation set up to promote the adoption of offsite solutions. It’s membership include Developers, Contractors, Consultants and Suppliers and it is an excellent source of information for all aspects of offsite strategies and technical solutions.  Their recently created BTR group aims to promote offsite solutions specifically to the BTR industry. 

 

It is generally accepted that Construction needs to be modernised and this process is already underway. There are going to be challenges along the way, but  BTR presents a significant opportunity for our new sector to drive meaningful, technology-rich change into the construction industry through offsite solutions. To be successful all parties will need to co-operate to ensure delivery of the bright ambitions of BTR.

 

Offsite thinking is in Geraghty Taylor’s DNA and we always design with offsite in mind.

 

Geraghty Taylor. Create differently

 

 

#BTR #BuildtoRent #Brand #Brandbeforebuilding