How to Engineer Viability into Build to Rent?

Posted by Colliers on 23rd May 2022 -

It’s a question that’s crucial to the burgeoning Build to Rent (BTR) market in the UK - how to build a residential product that is viable while still being attractive to your customers.

With material costs spiralling over the last two years, inflation rising and the Bank of England base rate going up as well, we decided to connect our experts from BTR, Project & Building Consultancy and Debt Advisory with some of our developer and operator clients to discuss some creative solutions to this conundrum.

What are the most effective value engineering solutions?

There were several ideas that the group shared from their experience on the ground. Common themes included locking in contractors or considering new smaller subcontractors to get a project over the line. Others shared that they were streamlining their construction processes, for example by using modular construction for bathrooms units, or adjusting the mix of unit type to produce standard floor plans across multiple storey projects.

In addition to cutting costs, some looked for opportunities to increase value in their product, for example by adding value within unit design.

Consideration of different partners was another solution suggested. Instead of seeking private equity or institutional capital, joint ventures with innovative local authorities or housing associations could also be another way forward.
 

Other current concerns

While costs were naturally a focus of concern, alongside access to materials, the stability of the supply chain and labour market, another significant concern is a lack of clarity over regulations and legislation particularly around fire safety. While many of the developers are expecting legislation to be introduced for creating secondary fire escapes, this has been slow at coming to fruition and there’s concern that regulations could be imposed mid-build which would create additional costs and unviable products. Futureproofing schemes in the most efficient way continues to be a focus.

Another pinch point is a lack of understanding amongst local authorities of the value of build to rent to their local economy. With the sector still relatively quite young there’s a lack of experience within planning committees and officers to draw upon when making crucial planning decisions. Continued engagement with local authorities will help.
 

What are the reasons to be positive?

There were reasons for optimism as well. The weight of capital looking to invest in the sector is significant and there are also new opportunities through green loans to create sustainable developments with various beneficial ratchet points along the way.

In addition, there’s lots of access to data which is useful for investors and developers looking to identify opportunities. Resources such as the Colliers’ Build to Rent Map highlight the opportunity for growth within the sector, as well as rental growth forecasts in several cities across the UK. As the sector continues to grow the benefits of this interactive tool will continue to grow.

It’s definitely not all doom and gloom. Our session showed that there’s a lot of creativity being deployed within the industry looking to make this sector work to the benefit of developers, investors, contractors and renters.