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Review of Build to
Rent & PRS
Shaping the future of renting
Ian Scott MRICS
Director - National Head
of BTR & PRS
North West PRS - Ian Scott, director, Lambert Smith Hampton
2019 Overall
• £48 Bn traded – 25% down from 2018
• Q1 was badged as the ‘Living Quarter’…
• First ever quarter where ‘Alternatives’ were
higher than commercial asset classes (54% of
volume).
• Retail and Offices suffer a lack of trading.
• Industrial popular and sharper.
• All representative of a subdued market due to
Brexit uncertainty and a shift in the demand for
different asset classes.
2019 Key Statistics
2016
2017
2018
£5.1 Bn
£10 Bn
£16.2 Bn
11%
17%
26%
2019 £16.9 Bn 35%
Year Volume %
UK Investment in Alternatives
• Diversification of portfolios
• Rental growth over 30 years out-performs RPI
• 2.7m dwellings (12% of total housing stock)
• Counter-cyclical?
• Fundamental under-supply in key UK towns & cities
• Genuine changes in customer behaviour towards renting
• Forward funding yield arbitrage
• Discount from VP rather than premium to VP and C3 use-class
• Rental growth captured year on year
• Less risky than PBSA
Why??
• Similar ‘pause’ situation
• Overseas sales slow down
• New resi planning consents slow down
• Bulk of supply landing now until Q3 2020
• Element of nervousness over supply...
• Buoyant domestic sales market
• Not even a handful of deals
Manchester BTR for 2019
UK Wide
15% of Alternatives is
BTR
Manchester
30% of Alternatives is
BTR
Manchester City Centre
BTR Schemes
Manchester BTR Schemes
Middlewood
Locks
Outwood
Wharf
Slate Yard
Anaconda Cut No 1
Greengate
Trilogy
Deansgate
Square
Manchester
Life
The Astley
Blossom Street
Angel Gardens
Kampus
Gore Street
The
Lancastrian
2019 Notable Completions
2020 Notable Projected Completions
• Invesco – Outwood Wharf
• Barings – Cornbrook
• Moorfield – Erie Basin
• L&G – Slate Yard
• Grainger – Gore Street
• Ares – Kampus
• AIG – The Lancastrian
• DTZi – Blossom Street
Circa 1,750 delivered
in 2019
Circa 2,500 to be
delivered in 2020
2019 Struggles…
• Three schemes have come to market with pricing
in excess of £370 per sq ft
• London based agents mispricing the market
• Bids at more like £300 to £350 per sq ft – in-line
with key comparable deals
• Most schemes unviable at this level now, due to
rising build costs and an aggressive land market
over the last four years
• All stakeholders need to understand institutional
pricing
• General trend for forward funding yields between 4.25%
and 5.00%
• LSH view that a 50bps arbitrage exists between funding /
commitment deals with lease-up risk, compared with trading
stable stock
• E.g. funding yield of 4.50%, trade stable after three years at
4.00%.
• Total commitment into the market place in the region of £1.5
Bn
• Average weighted net yield of 4.29% based on sensible ERVs
• Average price of £320 per sq ft
Pricing Analysis
North West PRS - Ian Scott, director, Lambert Smith Hampton
Rental Analysis
Rental Analysis
• Average BTR 1 bed - £940 pcm Vs £843 pcm
• (£97 pcm / 11.5% premium)
• Average BTR 2 bed - £1,209 Vs £1,099 pcm
• (£110 pcm / 10% premium)
• Average BTR 3 bed - £1,744 Vs £1,598 pcm
• (£146 pcm / 9.1% premium)
• 12 month rental growth reflected at 0.87% with one beds the most
aggressive.
BTR
Like with Like?
Oxid House
119 apartments
Practical Completion: May 2019
1 Beds: £900 pcm
2 Beds: £1,157 pcm
The Astley
135 apartments
Practical Completion: January 2019
1 Beds: £958
2 Beds: £1,233
6.5% premium for BTR
Absorption Analysis
• Anaconda Cut, Astley, Trilogy,
Burlington
• All fully let within 12 months of PC
• All over-achieving on rental projections
• Average monthly absorption =
20 per month…
• Demand much higher than ever
anticipated
Customer Behaviour
• Customers not tenants
• General amenity is being used including reception
areas, break out space, co-working space, gyms and
luxury lounges
• Communal cooking and dining facilities less so…
• Extremely strong levels of occupational demand
• Strong appetite for low entry costs
• Furniture is a must…
• Huge demand for one bed accommodation
• Lifestyle choice to have a property service
North West PRS - Ian Scott, director, Lambert Smith Hampton
North West PRS - Ian Scott, director, Lambert Smith Hampton
• Hands full with:-
• Section 21 no fault evictions to be
abolished
• Lifetime deposits…
• EPC – F & G rated properties
• Mortgage interest payment tax
relief and capital gains tax
• All affecting BTL market…
Conservatives
• Registered Providers have been taking a much more
active role over the last 12-18 months
• We feel their product should follow the BTR model in
terms of customer service and community
• More dialogue with Central Government and Local
Authorities about the BTR sector.
• Investment and Development communities need to
outline the benefits of this sector and its role as a key
contributor for overall housing delivery.
• Use class argument continues…
Government and Local Authorities
• Contractors, construction costs &
timescales
• Land pricing
• Operational platforms and operating costs
• Planning, affordable housing & S.106
• Overall economy
Five Challenges
• BTR Housing
• Retirement living / 55+
• Large scale mixed use development and
regeneration
• Less obvious towns and cities targeted
• Data to be at the forefront of the market
place and decision making
Five Opportunities
• Stable stock trading – exciting!
• City Centre renewal rates lower than
expected & op costs challenging
• Overall 2020 volume to be around £60Bn
with 30% Alternatives
• Registered Providers continue to disrupt the
market
• Manchester BTR Volume = £350m over 5
deals
Five Predictions
Please feel free to ask me
anything on the panel
discussion

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North West PRS - Ian Scott, director, Lambert Smith Hampton

  • 1. Review of Build to Rent & PRS Shaping the future of renting
  • 2. Ian Scott MRICS Director - National Head of BTR & PRS
  • 5. • £48 Bn traded – 25% down from 2018 • Q1 was badged as the ‘Living Quarter’… • First ever quarter where ‘Alternatives’ were higher than commercial asset classes (54% of volume). • Retail and Offices suffer a lack of trading. • Industrial popular and sharper. • All representative of a subdued market due to Brexit uncertainty and a shift in the demand for different asset classes. 2019 Key Statistics 2016 2017 2018 £5.1 Bn £10 Bn £16.2 Bn 11% 17% 26% 2019 £16.9 Bn 35% Year Volume % UK Investment in Alternatives
  • 6. • Diversification of portfolios • Rental growth over 30 years out-performs RPI • 2.7m dwellings (12% of total housing stock) • Counter-cyclical? • Fundamental under-supply in key UK towns & cities • Genuine changes in customer behaviour towards renting • Forward funding yield arbitrage • Discount from VP rather than premium to VP and C3 use-class • Rental growth captured year on year • Less risky than PBSA Why??
  • 7. • Similar ‘pause’ situation • Overseas sales slow down • New resi planning consents slow down • Bulk of supply landing now until Q3 2020 • Element of nervousness over supply... • Buoyant domestic sales market • Not even a handful of deals Manchester BTR for 2019 UK Wide 15% of Alternatives is BTR Manchester 30% of Alternatives is BTR
  • 9. Manchester BTR Schemes Middlewood Locks Outwood Wharf Slate Yard Anaconda Cut No 1 Greengate Trilogy Deansgate Square Manchester Life The Astley Blossom Street Angel Gardens Kampus Gore Street The Lancastrian
  • 11. 2020 Notable Projected Completions • Invesco – Outwood Wharf • Barings – Cornbrook • Moorfield – Erie Basin • L&G – Slate Yard • Grainger – Gore Street • Ares – Kampus • AIG – The Lancastrian • DTZi – Blossom Street Circa 1,750 delivered in 2019 Circa 2,500 to be delivered in 2020
  • 12. 2019 Struggles… • Three schemes have come to market with pricing in excess of £370 per sq ft • London based agents mispricing the market • Bids at more like £300 to £350 per sq ft – in-line with key comparable deals • Most schemes unviable at this level now, due to rising build costs and an aggressive land market over the last four years • All stakeholders need to understand institutional pricing
  • 13. • General trend for forward funding yields between 4.25% and 5.00% • LSH view that a 50bps arbitrage exists between funding / commitment deals with lease-up risk, compared with trading stable stock • E.g. funding yield of 4.50%, trade stable after three years at 4.00%. • Total commitment into the market place in the region of £1.5 Bn • Average weighted net yield of 4.29% based on sensible ERVs • Average price of £320 per sq ft Pricing Analysis
  • 16. Rental Analysis • Average BTR 1 bed - £940 pcm Vs £843 pcm • (£97 pcm / 11.5% premium) • Average BTR 2 bed - £1,209 Vs £1,099 pcm • (£110 pcm / 10% premium) • Average BTR 3 bed - £1,744 Vs £1,598 pcm • (£146 pcm / 9.1% premium) • 12 month rental growth reflected at 0.87% with one beds the most aggressive. BTR
  • 17. Like with Like? Oxid House 119 apartments Practical Completion: May 2019 1 Beds: £900 pcm 2 Beds: £1,157 pcm The Astley 135 apartments Practical Completion: January 2019 1 Beds: £958 2 Beds: £1,233 6.5% premium for BTR
  • 18. Absorption Analysis • Anaconda Cut, Astley, Trilogy, Burlington • All fully let within 12 months of PC • All over-achieving on rental projections • Average monthly absorption = 20 per month… • Demand much higher than ever anticipated
  • 19. Customer Behaviour • Customers not tenants • General amenity is being used including reception areas, break out space, co-working space, gyms and luxury lounges • Communal cooking and dining facilities less so… • Extremely strong levels of occupational demand • Strong appetite for low entry costs • Furniture is a must… • Huge demand for one bed accommodation • Lifestyle choice to have a property service
  • 22. • Hands full with:- • Section 21 no fault evictions to be abolished • Lifetime deposits… • EPC – F & G rated properties • Mortgage interest payment tax relief and capital gains tax • All affecting BTL market… Conservatives
  • 23. • Registered Providers have been taking a much more active role over the last 12-18 months • We feel their product should follow the BTR model in terms of customer service and community • More dialogue with Central Government and Local Authorities about the BTR sector. • Investment and Development communities need to outline the benefits of this sector and its role as a key contributor for overall housing delivery. • Use class argument continues… Government and Local Authorities
  • 24. • Contractors, construction costs & timescales • Land pricing • Operational platforms and operating costs • Planning, affordable housing & S.106 • Overall economy Five Challenges
  • 25. • BTR Housing • Retirement living / 55+ • Large scale mixed use development and regeneration • Less obvious towns and cities targeted • Data to be at the forefront of the market place and decision making Five Opportunities
  • 26. • Stable stock trading – exciting! • City Centre renewal rates lower than expected & op costs challenging • Overall 2020 volume to be around £60Bn with 30% Alternatives • Registered Providers continue to disrupt the market • Manchester BTR Volume = £350m over 5 deals Five Predictions
  • 27. Please feel free to ask me anything on the panel discussion