Brexit boost to build for rent

rent

Developers of homes for rent believe Brexit won’t stop their sector from expanding over the years ahead.

Some experts say current conditions represent “a perfect storm” for the emerging market of clusters of apartments funded by long-term institutional finance.

Housebuilders’ share prices fell sharply after the referendum results, which conflicting views over a future recession or interest rates rise.

Yet in spite of this, talk within the build for rent sector suggests demand for housing and particular rental properties, is not likely to fall.

Such talk ranks build-to-rent alongside hotels, with renters receiving different levels of service, newly fitted-out apartments and shared spaces for dinner parties and yoga classes.

The key difference with buy-to-let is that developments are professionally managed clusters of purpose-built flats under single corporate ownership.

Emerging new brands include Essential Living, Moda Living, Fizzy Living and PLATFORM_, while established companies like Legal & General and Grainger have all pledged substantial investment.

Moda MD Tony Brooks said:

“With uncertainty in the current market there may be new opportunities for sites in city centres, Brexit could prove a real boon for build to rent.

“Even in cities outside of London, like Manchester, Leeds and Liverpool, there will still be strong demand for a quality rental product that offers hotel-style living to professionals who want convenience and flexibility, regardless of what happens to our membership in the European Union.”

Martin Bellinger, chief operating officer at Essential Living backs this up saying:

“Build to rent developers have at times found it difficult to compete with volume house builders when it comes to acquiring sites, especially in places like central London where land values are sky high. But as development activity cools in the wake of Brexit, land prices and construction costs will probably drop, opening up new possibilities for the purpose-built rental sector.”

Build to rent companies are pitched as well placed to buy new sites if traditional housebuilders offload sites.

Britain’s currency woes would also make it substantially cheaper for foreign investors whose pension fund money backs many UK build to rent companies.

Construction costs, a key viability barrier, are also likely to fall in the medium-term as development activity related to for-sale residential, commercial and infrastructure projects dies down, says Mark Farmer, chief executive of Cast consultancy, which works with many major build to rent players.

He believes build to rent will be one of the sectors better protected from the fall out of Brexit saying:

“Less people will be taking out mortgages meaning the size of the rental market will increase. Land values will fall as for sale developers exit the market, so savvy build to rent players may benefit from a counter-cyclical strategy, focused on reducing build costs.”

Growing demand combined with reduced supply would see rents rise, improving yields for investors, in turn encouraging further interest says Graham Bates, chief executive of LIV, a leading build to rent management firm.

“Demand for rental accommodation will continue to outstrip supply, and any easing of land values could see yields move into more positive territory encouraging more investors to move in. Domestic funds need to be invested and international investors will benefit from a weaker pound.”

Above all, rental demand is expected to stay steady and perhaps increase as fewer people take out mortgages. Any rise in interest rates could also upset the buy-to-let market, pushing tenants into the build to rent sector, as increased mortgage payments force landlords to sell their assets.

Extending the stamp duty surcharge to institutional investors, which some believe was stop the UK government from falling foul of EU state aid rules, could also be reversed following Brexit, giving build to

Stewart Knight, acquisitions director at Westrock said:

“There is a lot of focus on London property, where the market is sensitive to international demand. But outside London, in the key employment hubs and commuter towns, we expect many professional people will postpone plans to buy and look for somewhere decent to rent instead.

“Based on the demand for our first generation of PLATFORM_ buildings, we see a real opportunity for expansion in those areas, particularly as demand for office space diminishes post Brexit and opportunities arise to convert commercial space to residential – or indeed build from the ground up.”

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