What is Build to Rent in 2022 (Complete guide, Explained)

As a new and exciting sector of the housing industry in the UK, the Build to Rent (BtR) sector promises a plethora of opportunities.

Unless you are familiar with the UK property development industry, one might wonder what makes Build to Rent special? And how does it operate differently?

This article will provide a comprehensive guide to the Build to Rent sector. And cover the purpose, its core features, and highlight the fundamental differences between Build to Rent, conventional housing, and affordable private rent. 

Build to Rent tenant-oriented ideology has made it a unique form of housing different from the conventional housing schemes such as affordable private rent units being an industry staple.

This ideology seems to be benefiting the sector, as it has witnessed exponential growth in the last five years.

According to BuyAssociation, the number of BtR homes coming to market grew by 26% between Q3 2020 and Q3 2021. In numbers, there were 63,950 BtR rent properties completions, up from 50,798 last year.

The UK Build to Rent sector is similar to the much older Multi-Family housing rental sector that is successful in the United States.

The Four Fundamental Pillars That Differentiate Build to Rent

With Build to Rent, regardless of owner and operator, there are certain fundamental pillars common to every Build to Rent development.

Let’s take a look at the detail of what separates Build to Rent from other housing schemes and rent developments.

Investment

Apart from being a tenant-oriented scheme, Build to Rent doubles as a great long-term investment option for investors. With Build to Rent investment, there are various deal structures available for any investor interested in the sector. 

Forward fund:

This deal structure requires the cost of construction of the Build to Rent scheme to be provided by the investors to the BtR developers as the scheme progresses. The funder will usually pay for the rent developments in three stages

1. Forward Fund Contract Completion
2. Cost reimbursement as the scheme is built
3. profit payment once complete.

Joint venture:

JV involves an arrangement between two or more business entities agreeing to share expenses, ownership, control, risk, and return of investments on the Build to Rent scheme they are developing. With a joint venture, each party can leverage its resources for the venture. This way, each party can deploy their expertise whilst lowering the cost of production.

Co-Investment:

This is a form of equity financing, consisting of investors whose ownership stake in the business is limited to the percentage of their investment. With co-investment, a main company or firm handles the Build to Rent project, while other investors (or limited partners) make up the minority investment.

In the last year, the Build to Rent sector has received a high volume of capital from investors looking to benefit from the opportunities in the sector.

According to KnightFrank, over £2.35 billion of capital was invested in the sector in the first half of 2021. The BtR sector is rapidly growing and there is no better time than now to invest.  

Design and Architecture

The design and architecture of a Build to Rent is the most distinguishing factor about its schemes. Build to Rent schemes are designed to benefit the tenants in the most efficient way possible. Each scheme is designed to foster a community and raise each resident’s quality of living.

With a quick look at a Build to Rent scheme, the difference from conventional affordable private rent homes is apparent. Here are a few reasons why:

Concierge space

In nearly all Build to Rent developments, concierge services are available. The activities of the concierge teams are considered in the architectural design of the schemes. Spaces like the entrance lobby, reception desk, parcel room, and staff room are included in the Build to Rent design to maximize tenant experience and concierge work enjoyment.

Amenity spaces:

These are spaces dedicated to providing necessary facilities that would make the lives of residents easier. For instance, a gym, work-from-home space, parcel storage, in-building laundry mart, restaurants, event rooms, etc. These spaces provide residents with amenities from the convenience of their homes.

Communal facilities:

The inclusion of communal facilities in a BtR is a basic feature. These communal facilities serve as common areas where residents can meet with one another and develop a real sense of community. Spaces such as a café, lounge, WFH, gardens, etc., are common spaces where residents can bond outside their apartments.

The Architectural design of BtR is a key selling point that attracts potential tenants. The efficient use of spaces especially during the lockdown has shown how adaptable BtR design can be. With various BtR schemes now incorporating Work-From-Home pods or rooms with the building as a must.

Management and Tenant Experience

When it comes to Build to Rent, management is fundamental as this is what influences the perceived value of a BtR scheme – regardless of its standard. The quality of tenant experience is connected to the quality of management provided. This is why most BtRs invest heavily in quality staffing, maintenance, and security of their schemes.

Michela Hancock, the managing director of development and construction at Greystar UK, emphasized the need for hiring and keeping the right people in the industry in a Property Weekly article: 

“Finding the right people is challenging, and once you have done so, it is critical to keep them. Motivation, training, and continuing to challenge and grow their careers is the responsibility of leaders in our industry.”

With maintenance in a BtR, the promptness of the management makes all the difference, not just regular maintenance. 

“Maintenance is a call away should you require any addition, modification, or repair to your flat. The management team is very responsive and proactive; nothing goes unattended.” as mentioned by a resident at Allegro Living, Birmingham.

Also, security is non-negotiable. What makes an apartment home is its security and this is expected from any housing scheme. 

“I feel safe here, the entrance is locked, all areas are well lit and clean, CCTV is in operation,” said a resident at Way of Life’s Vida House development. 

The bare minimum is not acceptable, flowing from the BtR ideology. BtR management is expected to provide state-of-the-art home security, comfort, and luxury for its residents.

Development Longevity

With Build to Rent being a long-term investment, the longevity of a BtR development is crucial to its profitability.

This is why Environmental, Social and Corporate Governance (ESG) practices are a part of BtR operations. Research has shown that ESG practices are vital to medium and long-term investments.

Integrating development longevity in the construction and management of BtR goes beyond profit; it is also beneficial to the environment. A sustainable approach to the construction and management of BtRs contributes significantly to its value retention in the long run. 

Especially with the current generation of renters (millennials) who prioritize sustainable housing over affordable private rent homes with no sustainability. A survey conducted by NMHC indicated that millennials are willing to pay an extra £32.64 a month to live buildings that have earned a green building certification.

FAQ

How is Build to Rent Different from PRS?

PRS stands for Private Rented Sector, and it is a collective term that covers all privately owned property for rent which includes Build to Rent and other conventional private rentals. Build to Rent is a specialized segment within the Private Market Rent homes sector.

Who Are the Top 5 UK Based Companies Operating in This Sector?

The top players in the Build to Rent sector include

• Quintain
• Get Living
• Moda
• L&Q PRS
• Graystar

Finally

As the Build to Rent sector evolves rapidly, the fundamental principles remain constant. The evolution of the BtR sector tends to favor factors that boost tenant experience, particularly in design, investment, facilities, management, and sustainability. 

Opportunities in the BtR sector in the coming years will be massive as the market cap is set to move to half a trillion pounds over the next 25 years and will accommodate all kinds of investors and businesses looking to tap into this promising market.

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