Manchester BTR's Perfect Storm Of Rents, Land Prices And Amenities
See this pair of well-groomed young professionals with a decent income? Aren't they exactly the kind of tenants you'd like in your Manchester build-to-rent development?
But wait. Maybe this barely tested market is about to hit a perfect storm of land price inflation, rental stagnation and rubbish amenities nobody wants. So the lovely tenants give your BTR tower a miss.
Bisnow's Manchester Build-To-Rent event explored the risks — and the expert's views are surprising.
The Manchester skyline is a jaw-dropping testament to the money and confidence invested in the build-to-rent sector. The pipeline is bursting, yet the number of completed developments is few. This is a business model with a long way to go, and lots of learning to do.
“You have to be concerned about the market getting ahead of itself, because of all the cities we invest in Manchester is one of those that has responded most quickly to demand," Smedley said. "We’re seeing 6,000 new households annually, and something like 15,000 new units in the pipeline, and if you annualised that there could be a risk of pockets of oversupply.”
“We have seen massive growth in the number of schemes, but our funds are putting the brakes on slightly," she said. "Of course if you find something exceptional with a sense of place then they all want to invest in it. But rents haven’t caught up with the land prices developers are having to pay, and we have to look at this.”
She added that she excpected some higher-end rents to fall, but some lower-end rents to rise, with the market meeting in the middle.
However, Mullenger also warned developers not to risk formulaic development. She said young professionals did not want identikit homes.
“We need to be very careful because there are examples of developers building the same block on different sites, and whilst you’ll find this generation is happy to rent, they want something different, and it's got to feel like a home, and feel like the life we have. So we have to be careful about creating a sense of place, which is really important.”
“There is still demand for Manchester BTR from the funds, but there is a slight nervousness on oversupply, especially at the prime properties price point. There is a slight worry about overheating there,” he said.
“Often funds are not keen on the big towers, so we are selling units to individual investors who want to get in, and starting to see nerves from overseas investors who want a safe place for their money. It’s a national, and an international thing, but it does affect sales in the city,” Till said.
“Margins are getting squeezed, and at a certain point rents will need to adjust to that,” he said. “At the same time investors are now taking a longer-term view of placemaking, about creating and curating a place, and know it's not about building the same two-bed apartment every time for the same caricatured young professional. Instead, you have to create opportunities for them to move in a rented market, in the community they want to live in.”
No More Gyms Needed
Mullenger took the argument a stage further. “People want a community space, not a gym which is what it always is [in BTR blocks]. What they want is a place for a birthday or a Pilates class or a crèche, something they can use like an extension of their home,” she said.
According to Till, investors also had to rethink their view of land prices in Manchester. “Investors are frustrated with developers for not achieving the rents they want, so there’s an element of pricing going too far on land in the last 12-18 months,” he said, adding that a number of sites supposedly sold are now back on the market, proof that the high prices of the last few months cannot be sustained when serious appraisals take place.
Rents not rising fast enough, land prices not falling fast enough, and not enough thought about placemaking or amenity? Manchester BTR may have some adjusting to do as 2019 progresses.