As we emerge from the pandemic lockdown, there can be no doubt that we now live in a changed world. New norms, new approaches to work, new life choices and new priorities. With these changes come new opportunities.
During the lockdown, the BTR sector has performed robustly compared to other property classes, especially the challenged retail, tourism and office sectors. Even with life returning to the high street and offices starting to open once again, the considerations of funds, investors, occupiers, developers, operators and tenants are all shifting. In this new landscape, BTR holds great potential and is attracting increased interest. The UK BTR sector remains less established than the more proven US multi family model, with Scotland lagging England in terms of market penetration. Experience from the US suggests that the UK market could account for up to 20% of new build development if similar patterns of development from the US took hold in the UK.
If this level of BTR penetration occurred in Scotland, then we could expect around 4,500 BTR units to be built per year. While this is a theoretical figure, and quite some way ahead of the current 10,000 units pipeline, which has taken the best part of a decade to develop, this does show the potential of the UK and Scottish BTR sectors when compared to the mature US multifamily housing sector.
A key component of the more mature US market is the prevalence of suburban development, rather than the UK’s more ubiquitous flatted approach. The development of family housing for rental has been gaining interest in Scotland. Developments are progressing for not only open market BTR, but also rental variants like mid market and intermediate rents. If this interest grows and can be converted into more deals then BTR’s potential for more rapid growth has a chance of being fulfilled.
Supply by City
The Scottish BTR sector has continued to see schemes progress through the planning system, driving the total identified pipeline of BTR units to over 10,000. Over half of the BTR units are located in Glasgow, which now has over 5,600 units, ranging from boutique 20 units schemes, to plans for the tallest building in Glasgow with Watkin Jones 30 storey plans for Portcullis House.
Edinburgh has seen developments continue to progress through the planning system, with over 3,000 units now planned for the city. There are a range of schemes in the Capital, from high density urban flatted projects, through to developments on the city boundary and in suburban locations. There are a number of sites currently exploring the viability of BTR versus the traditional for-sale models, and if these progress, then the gap between Edinburgh and Glasgow may narrow. The current pipeline in Glasgow represents around 1.9% of all households in the City, lower than the 2.2% which BTR represents in London. Currently, Edinburgh lags Glasgow, with the number of planned BTR homes representing 1.3% of Edinburgh households. Within Edinburgh, there is also a significant supply of Mid Market Rent units identified at the likes of Western Harbour, which while not open market BTR, could be considered as affordable BTR.
Looking ahead, the shifting patterns of demand for other use classes, such as retail and office, may see further opportunities come to the market in Scotland’s city centres as life in the post pandemic world settles down.