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Build to Rent: Is the UK the 51st state?

by | Nov 29, 2017

Some lessons from CBRE’s inaugural Build To Rent conference, a standing-room-only affair looking at what lessons the UK private rented sector can learn from the US ‘multifamily’ experience.

I’m just back from CBRE UK’s inaugural conference on the emerging UK ‘build to rent’ residential market recently, organised by our residential capital markets team. Build to rent is a small but surging property investment proposition, driven by a major shortage of affordable property to own. Thus, younger professionals are forced to rent, and this high demand is causing rents to rise strongly in many markets. However, many renters are making a virtue of necessity, deciding that if they must rent, they will not tolerate shoddy management and bad design.

Enter our American cousins. If there’s one thing that the Americans understand, it’s the importance of service and choice in renting. The American ‘multifamily’ real estate sector is large and mature. So, this first conference explored what the UK is learning from the States, whether we are following the US model, and how US businesses have fared in the UK market. And we invited a crowd of Americans clients and CBRE colleagues over to help us understand. Are we turning into the 51st state, or are we doing things in our own British way?

Here are three things Scott Cabot (our UK Build To Rent researcher, who has blogged about his own findings here) and I learnt on the day.

  • Within London particularly, there’s a tension between planning policy and delivering the right stock to customers, with different views about what’s needed locally. Our US guests sometimes found it difficult to adapt to the UK’s style of land use regulation.
  • The need to distinguish ‘multifamily’ or ‘build to rent’ from ‘renting’, as a different concept with a superior management offering. One US-based client argued that renters in the UK feel “disenfranchised” through lack of choice and are being very British by ‘putting up with it’. Yet word of mouth is helping some renters to understand what purpose built rental blocks can offer, and professionalising the sector could drive standards up more widely.
  • Amenities within a rented apartment block are crucial in the US model, but it’s not clear whether us Brits are ready for this. Renters might not understand or be willing to pay for them. So, our built to rent design consultancy team are finding designing for flexibility is critical.
  • UK developers can distinguish themselves by sticking to basics: providing good quality stock and a professional management offer. As Scott reported from Dallas, grade A (high amenity and expensive) stock in the US is now oversupplied and underperforming, with higher vacancy rates and lower rental growth, relative to grades B/C. Our US colleaguse also pointed out that grade B multifamily is currently one of the best performing asset classes in the US.

 

So, as is so often the case, the British are likely to adapt an American model to their own cultural and economic context. If we adopt it unthinkingly, or overspecify our product, we risk making some mistakes. And educating councils, customers and investors will be crucial.

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