The Build to Rent sector enjoyed impressive growth before the pandemic, writes Vanessa Warren of Mills & Reeve. With around one in five households in the UK now renting, BTR has been well positioned to benefit.
The BTR offering of professionally managed housing stock under single ownership and management control has proved popular with tenants and investors. The British Property Federation reports that at the end of Q2 2020, 47,754 homes had been completed in the BTR sector, with 80,730 in planning, a 27% increase on the previous year.
Occupancy rates before the pandemic were consistently high at around 95%, making the sector an attractive asset class for a range of investors seeking long-term, sustainable returns.
Weathering the storm
On the face of it, BTR may be vulnerable to the economic effects of Covid-19:
1 | BTR homes are predominantly located in London, the regions having proved more challenging for operators in the past on pricing and planning. Should lockdown accelerate the relocation of renters to locations outside the capital, occupancy rates could be impacted.
2 | Unemployment presents a challenge for the sector. In September, 30% of employees in London were furloughed. Young people make up the majority of BTR renters and have been disproportionately affected by redundancy. The unwinding of the furlough scheme in March could see a decline in rent collection.
However, there are signs that BTR is showing resilience in the face of the pandemic. A CBRE study showed rent collection across the sector at a robust 92% to 98% of rent demanded for May.
Rents, although predicted to fall by up to 2% before the end of the year, are predicted to increase by between 2% and 4% in 2021.
Despite reduced activity in Q2, investor confidence gives cause for optimism. With more BTR schemes now appearing outside London, Savills report that investment volumes had reached £2.7bn by October 2020, already matching 2019 levels.
A renewed focus on wellbeing following the pandemic could also bolster tenant demand. A key feature of BTR schemes is the incorporation of technological and design solutions to meet the environmental, social and lifestyle aspirations of their tenants.
Although the full effects of the pandemic are yet to be known, there is every sign that BTR is well placed to weather the Covid storm.
Vanessa Warren is principal associate at Mills & Reeve