It is a challenging time for the property sector. The future of the sales market remains opaque with uncertainty surrounding transaction recovery, valuations, future affordability, and mortgage availability. In the Private Rental Sector there have been challenges for private landlords and tenants alike, and, especially in Edinburgh, there has been a significant shift in the market as demand in the Short Term Lets sector has evaporated. However, more importantly, beyond the challenges to the sector, the challenges for individuals and households under the Covid-19 lockdown have tested many of the traditional assumptions and practices we expect for housing. Against this testing backdrop many of the qualities of the Build to Rent (BTR) delivery model, and service-led rental offering, have emerged as advantageous.
In dealing with the most pressing human issues relating to Covid-19, the centralised management of BTR properties and BTR services offer practical advantages under the lockdown. High speed internet enables consistent homeworking. Delivery lockers and cool rooms allowing contactless delivery. Centralised management allow for easier cleaning and repairs. Existing communications channels with residents and neighbourhood community groups have allowed tenants to be kept up to date and remain socially connected. With mental health, as well as physical health, being a major concern during lockdown, pre-existing community cannot be overlooked, at Rettie & Co we have seen a marked increase in the usage of our resident portal and community engagement forums. Something that has been wonderful to be part of and we will continue to develop.
The institutional nature and professional management of the BTR block offering has also given us the ability to offer advice and knowledge to residents with regular communication on mass, using those well established communication channels as well as individual assistance and signposting during the difficult times for anyone facing hardship, this has enabled us at Rettie & Co to maintain a 98% collection on rent roll across our BTR portfolio in Scotland, in April. Supporting our residents and landlords alike.
Harbour Gateway, Edinburgh
From a market perspective, there may be no doubt that BTR, much like the PRS, is going to be facing a difficult and different from forecast outlook, especially in the short term. Particularly the delays of delivery for planned developments, are likely to be key challenges to the sector. This said, there may be some silver linings further down the road, once recovery starts. Weakness in the sales market, constrained new housing supply, and reduced transaction activity, as well as potential challenges for affordability and lending in the wake of the lockdown, may affect a number of households that would have been looking at moving up the tenure ladder. In addition, if there is a lasting economic downturn and weak house price growth, then the financial attractiveness of buying can wane leading to a rise in rental demand. In the wake of the 2008 Global Financial Crisis, with lending retreating and a stagnant sales market, the PRS tenure increased 5% across Scotland, 6% in Glasgow and 10% in Edinburgh.
The BTR pipeline of over 7,000 units is a significant supply of new housing. Moreover, the locations of planned BTR developments in Glasgow’s City Centre and Edinburgh’s Fountainbridge, are in key districts for new residential occupation. With new development for sale potentially slowing depending on the lasting effects of the lockdown, BTR is well poised to step into the supply side of the market. Also with the Scottish Government Affordable Housing Target suspended, the delivery of BTR, and Mid-Market Rental schemes, will prove even more critical in supplying new homes and affordable rental homes.
Looking ahead, the recent confirmation of funding for Moda Living’s Springside development in Edinburgh by Apache Capital Partners and alternative real asset investment firm Harrison Street is evidence in the confidence in the BTR sector in Scotland, and the role it will play in a post Covid-19 property sector.
BTR is more than just flats and the recent experience has shown that as well as being vital in providing the number of homes needed across Scotland we can do so whilst creating communities with firm and active communication to help those who need it when they do. As well as offering a resilient and sound investment. Long may that continue. An opinion I am not alone in holding.
John Dunkerley, CEO and co-founder of Apache Capital Partners, said: “We are committed to delivering and expanding our build-to-rent pipeline with both Harrison Street and Moda Living despite the near-term disruption being caused by COVID-19.
“There remains a fundamental mismatch between supply and demand for high quality purpose-built rental housing in the UK and for investors seeking long-term, steady income streams from assets with defensive, counter-cyclical qualities, build-to-rent remains highly attractive as a sector.”
Johnny Caddick, managing director at Moda Living, added: “The resilience of residential property as an asset class has never been in doubt, but in recent weeks we’ve learned just how much our customers have valued the ability to work, exercise and prioritise their mental and physical wellbeing without leaving home. The continued confidence of Apache and Harrison Street in our branded platform underlines the defensive qualities of build-to-rent and we look forward to raising the bar for renting in Scotland.”
Robert Mathias, senior managing director and head of international business for Harrison Street, said: “Edinburgh is a thriving city with a strong economy focused on the financial and technology sectors, a highly skilled workforce and vibrant cultural attractions. However, Edinburgh suffers from a significant lack of viable residential rental housing options given there is virtually no purpose-built accommodations in a city where nearly a quarter of the population are renters.
“We are thrilled to further our partnership with Apache Capital to develop Springside, which will provide much needed attractive rental options for the growing number of people in the UK choosing to rent. Apache Capital and Moda Living are world class partners in the UK BTR space, and we look forward to expanding the joint venture through investments in first-class properties backed by compelling demographics.”