On 9^th May 60 guests were hosted by Grosvenor in their fifth-floor meeting space for an interactive session convened by ULI UK Young Leaders to explore the Realities of Renting in the UK. Despite the 8am start on a Monday morning the room was packed, with attendees knowing they had beaten 100+ others still on the waiting list to a ticket to participate in this discussion.

Katherine Rodgers from Grosvenor opened the session with a nod to all the hard work put in by Alex Notay and the ULI UK Residential Council steering group on the latest Build to Rent Guide (available for purchase here), which has been a great resource for work on Grosvenor’s Bermondsey project. Grosvenor aspires to create in Bermondsey a new part of this urban neighbourhood with a rich history, offering homes to people of mixed incomes, backgrounds, life stages and jobs.

Rather than talking about the private rented sector, Adam Challis of JLL Residential thinks we should start referring to Private Rented Communities (PRCs) – which are about the end customer; much more than just bricks and mortar. In terms of investor demand and increased allocations, PRCs and Student Housing lead alternative asset preferences from institutional investors. And why should we all care? Supply is needed, PRCs are counter-cyclical which protects jobs, drives early regeneration, make economic sense and ultimately will improve tenure quality.

Capital investment for BtR is coming from many different markets, noted Dominic Martin of Westrock. This has meant that BtR is no longer considered the ‘poor cousin’ to the commercial sector within the real estate industry. In North America and mainland Europe, it is known instead for generating safe, consistent returns. As it becomes a more prominent asset class, numerous trends start being observable which make the sector stand out from Buy to Let investments – from Smart Meters and IT/software systems, through car-pooling and community-building, to using one brand of appliances in a building. At the same time, more BtR JVs are formed as demand continues to outstrip supply.

Michelle Hannah of Cast Consultancy talked numbers and viability. Build to Rent has introduced the cradle to grave approach for financial viability versus for sale product which just looked to the point of completion. A development AND operational appraisal are required which is new territory for some developers and requires a change in the investment assessment mindset. It is key to understand the metrics with a long-term asset where the focus shifts from IRR to yield, and recognition of a different IRR target to that of a for sale product assuming a hold period past completion. Considerations should be given to optimising procurement and deliverability through the use of offsite manufacturing and bulk purchasing & agreements.

Gina McMorran shared how Essential Living is working to change the perception of renting from being the alternative to home ownership to being a tenure and lifestyle of choice. Essential is involved with the full product lifecycle from land acquisition to operations. Gina’s marketing campaign outlines the benefits of renting with Essential including optionality, community, hassle free renting, no hidden costs and responsive maintenance – all as part of the approach “putting the customer at heart” approach.

Reinventing Renting is precisely what Adam Russell and Fizzy Living are focused on. As an acquisitions manager, Adam spoke about the investment perspective for BtR – with the key drivers being current and future rents, wage inflation as well as cost effectiveness in construction and operations. It is the ability to influence these three and focus towards a target market that drives the Fizzy BtR model. The 25-35 “rentie somethings” want something different to the market and a sense of home. An on-site manager is important, as generations today want everything instantly. A key differentiator has been allowing the end users to influence their new home – from virtual property tours to customising how their property is furnished.

Having disrupted the hotel industry with Yotel, Gerard Greene is now looking to revolutionise the way we live in rented accommodation with his brand Society. Some innovative approaches at Yotel included using aircraft designers for small rooms and automated check-in processes to reduce administrative costs. Gerard clearly plans to leverage this experience to shake up the BtR sector. He spoke about Society’s plan to focus on customer service and experience as an operator, versus owning assets. A major area for innovation in BtR/PRS is through technology and data analytics, which will help to drive revenue and efficiencies – for instance through understanding if revenue can be generated from on-site amenities.

Group Discussions

Following the introductions and six expert presentations, the room was split into six groups to focus on different topics. Each expert rotated between the groups to discuss the topic and share insights with the young leaders. The notes below include take-aways from the final plenary session.

Neighbourhoods

• BtR developers don’t need to be ‘all things to all people’. They need to be clear on what their product is and create a platform for their residents to create their own communities, and support them to do that.
• Retain control of your brand, don’t partner and expose yourself to collaboration with brands you don’t have control over.
• Invite people into the building, not just residents, to create a hub and generate more streams of income (additional ROI), as successful hotels like Hoxton & Ace do. Create a buzz, atmosphere, and encourage people to spend time – not just to live there.
• Great service, appreciating & knowing what residents will want.
• People with a like-minded approach to communal living – don’t know who they are until it is fully operational. Not worth putting a ton of investment up front for one target group.
• Buildings as a part of the community & neighbourhood – what they can offer.

Lifestyle & Amenities

• Get the basics right including quality service (get the LA on side).
• Location specific – need to think about price point.
• Blank spaces/flexible spaces/adaptable spaces.
• Digital democracy within a scheme – allow people to influence lifestyle.
• Think like a retailer – footfall, access, fire safety (how many people can use a space).
• Community taking over a space – users generating activity.

Affordability

• How can PRS bring more affordable housing to the sector?
• Planning process – different requirements by location/Local Authorities. Some work better with developers.
• CIL – any opportunity to vary? In the hands of politicians.
• Space standards – can an efficient, well-designed development use smaller space standards than may otherwise be allowed?
• Land is a large part of the up-front cost. Is there a role for landowners (public sector) to join in JV where landowner participates in future revenue?
• Is there a differentiated service offer whereby customers can choose which services they want on a “pick-and-mix” basis (e.g. no gym but additional storage) – with a consideration of affordability.

Co-living & Sharing

• Co-living is generally perceived as for the young/graduates. Make sure that it is possible to adapt the amenities and have flexibility to meet the needs of a diverse set of markets. Families (kids) – homework/clubs/spaces. At 6/7pm could change demographics.
• How to design apartments/co-living spaces that have true flexibility? Movable walls/movable services/amenities. Big challenge for developers – leap of faith required going forward. Buildings must be adaptable to meet lifestyle needs of a changing market.
• Different models of tenancy tenures. Business intelligence and data will help drive this. This is not quite established in the UK, but there is an appetite to understand this well. Software is not adequate yet. Perception of renting needs to change.

Digital Living

• Initial stage – how does digital affect when you move in? How do you attract customers?
• Viewing experience online. Society – online. Fizzy – virtual tours on iPad.
• Management – biggest impact.
• Online check-in without staff costs. Reduce costs. 24 hour help desks with online portal.
• Community – do apps actually work?
• Feel they do not work. All about Facebook/Instagram/Twitter – people are already using them. Each building can just have a Facebook page. Use existing pages.

Planning & Policy

• Is the policy there yet? It is written in many, but is it really working? Not really.
• Do ministers get it? Starting and efforts.. But leap of faith.
• LT do we need a formal asset class? Probably. Ready now? Probably not. May stall advancement of sector.
• Medium term – communication. Leap of faith – what are the LA signing up for? What are investors prepared to covenant and commit to?
• Trying to shoe horn a new product/design into existing housebuilder/affordable housing policy. In order to allow the product to be created – need to sell benefits to local authorities and differentiate the sector. Defining what the asset is (operators, intentions).
• Solve the public opinion point once there is momentum. It is not just home ownership that people want.
• Build to rent transition currently. Greater interest in covenanting the land at planning stage (5/10/15 years). Mechanisms for break up but may have to re-pay loss of affordable housing.

Thank you to our fabulous moderator, Grosvenor for hosting, expert speakers, event organisers, and the participants for an engaging morning.

Want to know more or learn how you can get involved?Were you on the 100+ wait-list or otherwise unable to attend this event? Stay tuned! We are planning another Young Leaders event in the autumn which will be available exclusively to YL members. Not a member yet? Check out the ULI UK website to learn more.

Words by Emilie Walker, Alex Zolyniak and Alex Notay

This event was kindly sponsored by