The rental growth ceiling will expose Build to Rent's weak strategies


09/05/2023
by: Mary-Anne Bowring

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A severe mismatch between supply and demand is the phenomenon behind the UK Living Sector. The lack of supply makes a property more expensive to buy, which means more people rent for longer. However, investors cannot bank on the profound supply-demand imbalance. As house prices are dictated by how much people can borrow, renting is mainly determined by affordability. Renters are only willing to pay so much for their homes, particularly amid a cost-of-living crisis. 

The key metric to judge the success of operations is your net operating income. In an era of restrained rental growth, owners and operators will focus on non-rental revenue streams to drive returns. The key to achieving both aims is the integration of technology. Fundamentally, good operations are about creating experiences that are good value for money. Having a resident app can assist with building an onsite community and entice residents to pay for additional services.

By automating processes of accounting, e-procurement, fire safety regulations and building safety procedures, operators can drive efficiencies and allocate staff resources. Moving these processes online also allows for data harvesting, which can uncover patterns of unsuccessful viewings, repair recoveries, and arrear collections, creating further opportunities to reduce leakage. Good operations also require advising on the design and build quality, including front-of-house, back-of-house, shared amenity spaces, and internal apartments. Less often considered are aspects like the locations of CCTV cameras, designated parking and loading zones and external landscaping. All developments should be designed to the needs of residents and offered to the surrounding communities.

Our involvement with Build to Rent schemes included designing layouts for the co-living revolution in shared co-working spaces catering to the young professionals that tend to rent in this sector. Single-Family Housing requires a very different operational strategy in the absence of shared amenities, for example, by optimising parking space for the 64% of residents in the sector that commute to work by car.

Well-designed amenities encourage engagement from the wider community. This rapidly changing environment means investors cannot rely merely on the market performance that has driven returns over the past few years. Instead, they must grasp the nettle of ensuring good operations before it is too late.


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