North West PRS Conference: Ian Scott, Lambert Smith Hampton
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This document provides an overview of the investment market and private rented sector in relation to the North West of England in 2017-2018. Some key points: - UK commercial property investment volumes reached £59.8 billion in 2017, up 26% from 2016, driven by alternatives and industrial properties. - In the North West, alternatives made up the largest sector at 41% of investment, with build-to-rent being the largest component. - Several major build-to-rent deals occurred in Manchester and Liverpool in 2017, with yields between 4.45-5%. - Key challenges for the build-to-rent sector in 2018 include securing development funding, managing high build costs, assessing supply
North West PRS Conference: Ian Scott, Lambert Smith Hampton
- 1. Investment Market Overview in relation to the Private Rented Sector Ian Scott BSc (Hons) MRICS Head of Northern Build to Rent Lambert Smith Hampton
- 2. 2017 Commercial Property Investment • Boom like activity in Q4 • End of year flourish pushed the annual total for 2017 to £59.8bn, up 26% on 2016 and 38% above the 10-year annual average. • Key winners – Alternatives and industrial • Losers – Shopping Centres and retail • Domestic buyers back in town • IQ deal elevated alternatives volume to an impressive £3.3bn in Q4, pushing the total for 2017 to a record £10.0bn. • For the first year ever, alternative volume was higher than both retail and industrial, accounting for a record 17% share of UK volume. 0 5 10 15 20 25 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 UK Investment Volume (£Bn)
- 3. 2017 Commercial Property Investment (North West) 41% 16% 27% 16% Office Industrial Retail & Leisure Alternatives NW Investment by Sector Alternatives Broken Down 65% 26% 7% 2% PRS Hotels Student Other
- 4. North West Build to Rent Key BtR Transactions 2017 Blossom Street Mulbury DTZ IM £30m 4.45% Outwood Wharf Invesco Endeavour £45.3m 5.00% Gore Street Grainger UK Land & Property £80m 4.75%
- 5. North West Build to Rent Key PRS Transactions 2017 The Rock, Bury Grainger £22.1m 5.00% Tribe, Manchester Grainger £26m 4.92% Project Conker TBC TBC TBC
- 6. North West Build to Rent Why Manchester • Population growth • Rental growth • Capital growth • Jobs growth • Graduate Retention • Average Earnings • Urbanisation?
- 7. North West Build to Rent Key Locations: Does it work elsewhere? • Liverpool! • Affluent Suburbs – Didsbury, Chorlton, Sale etc • Large Towns – Oldham, Bury, Rochdale etc? • Housing market – e.g. Sigma Capital
- 9. North West Build to Sell to Rent? Dominant Overseas Buy to Let Market • Substantial element of the PRS market in Manchester and Liverpool • Developers beware? Risk profile… • Debt funding market… • Inflated pricing • Some deals looking like 2% yields… • Market flooding? • Guaranteed yields
- 10. North West Domestic Market? Asking prices in City Gate: £283 to £333 per sq ft (Rightmove 11/01/2018) Dominant Overseas Buy to Let Market
- 11. Key Challenges for 2018 S.106 & Local Authorities • Build to Rent use class argument • Local Authorities utilising overseas sales comps for s.106 negotiations when the developer proposed an institutional Build to Rent exit • Affordable rents provision • Local Authority housing
- 12. Key Challenges for 2018 Development Debt Funding • Still an issue for all sectors • Pricing of stable blocks Vs forward funding • High street banks remain cautious • Challenger lenders are expensive • HCA / Government intervention such as the GMHF
- 13. Key Challenges for 2018 Levels of Supply 7,745 units currently on site and under construction High end product with little mid- market stock 3,329 units delivered since 2010 c. 15,000 further units in planning pipeline Vast majority delivered to the periphery On-going supply and demand imbalance
- 14. Key Challenges for 2018 Where is the demand coming from? • Young professionals • Students • Families • Businesses • Executives / Celebrities • Urbanisation • Population Growth • Infrastructure • Family housing • Absorption rates Levels of Demand Do the likely occupiers in the North West of England demand high end product at premium rents?
- 15. Key Challenges for 2018 High End Market? Lambert Smith Hampton exclusive interview with Jose Mourinho… we asked if the décor in the Lowry works for him and if he understood the Manchester PRS market…
- 16. Key Challenges for 2018 High End Market? Lambert Smith Hampton exclusive interview with Pep Guardiola… we asked if he was happy with the his executive apartment in City Suites…
- 17. Key Challenges for 2018 Build Costs
- 18. • As time goes by we will know more… • ERV • Operational Costs • Yields based on ERV • Rental Growth • Unit Sizes • Build to Rent Vs Buy to Let • Absorption Rates Key Challenges for 2018 Assumptions / Crystallisation?
- 19. Key Challenges for 2018 Scale of Development A typical public housing complex in Tseung Kwan O, Hong Kong. The Kin Ming Estate consists of 10 housing blocks, providing affordable housing for approximately 22,000 people.
- 20. Build to Rent – Reaching out to the Regions
- 22. www.lsh.co.uk