The ABC Of Build-To-Rent: Why Amenity, Brand And Community Matter So Much
In the brave new world of build-to-rent three things will matter: amenity, brand and community.
The new ABC will be the battle ground as BTR operators scrap for market share with each other, and with existing private landlords.
In the second part of Bisnow's in-depth analysis of the U.K. build-to-rent sector, we ask: can developers deliver what people want; who will be the winners; and who the losers?
BTR is still a novelty in the U.K. There are just 124,000 units under construction or in the pipeline, roughly half of them in London, about 15% in Manchester, and the rest distributed among major cities with Birmingham the outstanding performer.
Although the BTR market is tiny, the attractions of stable, institutionally owned and managed private lettings are clear to tenants used to the hurly-burly of the private sector buy-to-let market.
But very soon that simple sales pitch will lose its power. Instead, amenity, brand and community will become the market-makers.
M&G Real Estate Head of Residential Investment Alex Greaves is presiding over a modest 135-unit BTR scheme in central Manchester and if he could find a suitably priced site in Birmingham, he would buy it. Greaves agrees with many other investors and developers Bisnow has spoken to that poaching tenants from buy-to-let landlords is relatively easy. But when that pool is drained, direct competitive pressure between BTR operators will inevitably grow.
“We will soon see, in Manchester and in London, a full BTR market where operators are competing with each other. It’s been easy to win tenants if you are competing with buy-to-let. But it will not be so easy against other BTR operators,” Greaves said.
Amenity will provide the key weapon in the campaign to win tenants. “We’ve already heard the first gunshots in the war over amenities," he said. We’re already seeing most BTR operators offer no deposits, no moving fees, terms and conditions like that and the market needs to get to a level playing field on that first. Once we do, we’ll see increasing tenant sensitivity on amenities, and the market will gradually discover the price of winning and retaining tenants.”
Second-guessing what 20-somethings in Birmingham or Manchester want is not going to be an easy task — and the consequence will be some operators losing out. “Middle-aged people sitting in offices in London will find out if they’ve got it right,” Greaves said.
Choose Your Weapons In The Amenity War
The battle over amenity could play out in some complex and expensive directions.
In Birmingham, SevenCapital has taken a gamble that high-end hotel-style amenities — including access to the hotel kitchens and laundry services — will turn occupiers heads at their 238-unit St Martin's Place scheme.
In the more affordable marketplace targeted by Grainger’s 614-unit Clippers Quay development, Salford, the amenity mix includes what is fast becoming the standard package of 24-hour on-site gym, WiFi to die for, a 7K SF residents lounge, cinema and dining suite, co-working, Amazon lockers and parcel collection and — the clincher — a big welcome for Mr Moggy.
“Welcoming pets into Clippers Quay was a natural next step for us," Clippers Quay General Manager Nicola Renny said. "There is so much opportunity and flexibility available with renting, and we want to focus on building a community that grows and adapts to the needs of our residents. There is a place for everyone at Clippers Quay, and your pet is no exception.”
This kind of innovative offer will become more significant, predicts Urbanbubble Managing Director Michael Howard. Howard said it will mark a wider process of product differentiation and that a tiered BTR market is inevitable.
“I absolutely think a wave of good new stock will provide a stratification — we’ll see Grade A, B and C space just like the office market, and eventually we’ll follow the American model where we’ll see mom-and-pop style family accommodation and city living multifamily styles. So the market will sort itself out,” Howard said.
Howard, who is managing a vast portfolio of Manchester BTR and now breaking into the Birmingham market, said that cap-and-collar rents — no less than a 2% increase, no more than 5% — short notice periods and the abolition of fees is already levelling the market in the way that Greaves described. And whilst he expects the current surge in BTR provision in Manchester to cause some disruption to pricing, it will be localised and short-term.
“There will be issues on price — inevitably — but look long-term to 2030 and the disruption will seem like a blip.”
“When we manage a BTR scheme we want the tenants to look forward to living with their neighbours — to look forward, not feel anxious about it. Everyone wants to live with like-minded people, that is how you create real communities.”
And this is where the C of ABC comes into play: could the intangible benefits of a sense of community, in the end, mean more than the solid fact of amenity?
Love Thy Neighbour
There are plenty of investors and developers who have hitched their wagon to the community train, and the scope of their ambitions is easiest to see on the larger-scale BTR projects of 1,000 units or more. To find the big projects you must head to London, and few come bigger than Quintain’s 85-acre Wembley Park. The latest contract, let to Wates, will see 377 BTR units to be run by Quitain’s management arm, Tipi.
Quintain Chief Executive Angus Dodd respects those who deliver stand-alone BTR blocks — but thinks only larger developers can offer real community.
“The point is that the BTR industry is trying to offer more than just so-many square feet to live in,” he said.
Dodd agrees that BTR will turn into a tiered market. “There will be the luxury offer, there will be the basic offer,” he said, but a powerful sense of neighbourhood will be a part of both.
Get Living Executive Vice Chair Rick de Blaby, the man in charge of Delancey's BTR joint venture with Oxford Properties, Qatari Diar and APG Asset Management, is focused on larger schemes for the same reason as Quintain: in a low-margin business only by scaling up, and creating clusters, can service and amenity provision work.
“Our business model is based around creating neighbourhoods,” de Blaby said. “It’s all about a great home in a great neighbourhood backed by exemplary services, and you can only do that in schemes of 400 or more units. But I think it is the neighbourhood that is the product differentiation. With smaller blocks you cannot control the domain, make it safer, support amenities like retailing or coworking space, and you can’t put a team in place to deal with even basic things like a dripping tap. You need scale.”
However, de Blaby issues a warning. “Never presume that we, the developers, are the creators of neighbourhoods. People do that themselves. We create the conditions for them — we want people to stay because they make friends and it feels like home. But neighbourhood is a very intricate, symbiotic thing. It’s about events, it’s about club facilities, it’s about coworking, and organisations and clubs, and sports, and Mum-and-toddler groups …” And the list runs on.
Given that community obviously matters — but is hard to magic out of the air — many developers are looking for a work-around. Could branding be the answer?
We All Buy Brands
Cities are big places, markets are complex and confusing, and finding a home is a trauma at the best of times: surely brand can be the short-cut through the thickets of amenity and community? That is the hope of Moda Living Director Oscar Brooks.
“In America you already have an amenity arms race in the multifamily sector where developers are adding everything from bowling alleys to swimming pools. And we understand that — we think convenience is the watchword for our customers, they want a real quality of service so we’re agreeing tie-ups with services like Uber, and others we’ve yet to announce, to provide a seamless service to operators,” Brooks said.
Moda are also at work on an intricate community programme, organising events and stimulating sociability.
However, Brooks says many of his rivals — all of whom offer variations of similar amenity packages — have missed a trick, and this trick is branding. As a model he has another amenity-rich sector — the hospitality business — in mind.
“The critical point other operators are missing is brand, I genuinely believe this sector will go the same way as the hotel market. If you deliver a quality U.K. wide brand, that is more important than the bricks and mortar. We have to think of ourselves as a leading lifestyle brand, a lifestyle brand that can stand alongside others on the high street, something that’s aspirational and people can buy into.”
So BTR becomes something like Hotel Chocolat crossed with Premier Inn, Hotel du Vin meets Victoria’s Secret? Maybe, maybe not, but there is one thing about which Brooks — and many others in BTR — are completely convinced. That BTR is the thin end of the wedge that turns property into a service sector, and finally detaches it from its bricks-and-mortar foundations.
“I think of it like this. The building is the iPhone, but what makes it useful are the apps. This is a cultural shift. People expect better and people aren’t willing to put up with the issues of an absentee landlord,” Brooks said.
BTR has yet to fully learn its ABC. But it is already spelling out a radical new future for property.