In light of the UK’s BTR industry’s rapid growth, and the knowledge of the position the industry holds. We believe the UK BTR industry is the perfect vehicle to steer the economy towards sustainable construction and development.
The need for the world to embrace sustainability practices that reduce carbon emissions has never been more urgent. Especially, with the imminent threat of climate change and global warming. It threatens humanity’s survival and the international community has been taking various steps to this effect. The most notable at time of writing being the Paris Agreement of 2015 with 200 nations as signatories (including the UK).
The Paris Agreement seeks to achieve a drastic cut of greenhouse gas emissions by the year 2050 tagged Net-zero. Net-zero means a radical change across the entire economy, doing away with fossil fuels and other sources of emissions. Every ton of carbon emitted must be matched by a ton removed from the atmosphere.
Despite the devastating effects of the coronavirus pandemic, the world witnessed a silver lining during the lockdown. According to BBC News, the daily global carbon emissions fell by 17 per cent at the peak of lockdown. Although the lockdown effect on climate was temporary, it has given us irrevocable proof… Only our collective efforts can fight climate change.
In steering the UK BTR industry towards sustainability practices, here are the key areas that are important to continual improvement in the climate change crisis, as well as, beneficial to a BTR Business strategy.
Reducing Cost Leakage
Cost leakage is one of the major, giveaways of an inefficient building. And, it’s one of the most important financial metrics for a Build to Rent investor. As a reduction in operating cost or cost leakage equals more return on investments. Reduction in cost leakage goes hand in hand with operational efficiency through the use of less energy and natural/environmental materials. To achieve this, Build to Rent developers should make a conscious decision to incorporate sustainable construction and energy-saving materials.
In August 2020, Moda Living entered into a partnership with Utopi (a smart technology firm). They provide Moda’s BTR developments with a Building Management System (BMS). The BMS with the use of sensors, helps to monitor and regulate the building’s electrical & mechanical equipment such as power system, lighting, heating, air-conditioning, elevators and other utility systems. This automatic real-time regulation ensures the systems run efficiently, which reduces the cost leakage of the Build to Rent.
Refurbish to Remain Current
Fundamentally, a BTR development is a long-term investment. I.e. it only becomes profitable for investors after several years of operations. Consequently, the need to refurbish or renovate a Build to Rent development is inevitable. Consider the need to stay up-to-date to remain competitive in the industry and attractive to potential tenants. Refurbishment and renovations are a great opportunity to bring a building up to and over sustainable standards.
An example of a building that has gone through a sustainable refurbishment is the Huidekoper building in Amsterdam. Huidekoper is a 60,278 square ft development previously owned by Bridge Real Estate. According to Savills, Huidekoper has undergone serious refurbishment to meet the all-electric sustainability plans for Amsterdam by 2050. The building was stripped back to its concrete frame and upgraded with sustainable installations. Including, a heat pump, a roof full of photovoltaic cell panels and high insulation values. Making it all-electric with low energy consumption.
Refurbishing to suit sustainable standards is beneficial to the environment, but also to investors thanks to low energy consumption.
Build Quick For IRR/ Reduce Carbon While Constructing.
The period in the lifespan of a BTR development that contributes the most to the climate change crisis is construction. I.e. the carbon released and water used during the physical construction. Modular construction can reduce this. It’s now having its time to shine within the Build to Rent sector.
“Modular construction is a process in which a building is constructed off-site under controlled plant conditions, using the same materials and designing to the same codes and standards, as conventionally built facilities“.
Modular Building Institute
Given that modules are constructed in controlled factory conditions, it reduces waste. It also creates fewer disturbances at the site, and is environmentally friendly. Also, in case of a building refurbishment, modular buildings can be easily dissembled.
Although modular construction is relatively expensive to undertake, it makes up for it in the speed of construction. Which can significantly improve financial metrics such as the Internal Rate of Return (IRR). Basically, the faster the construction period, the more accelerated the rental income stream.
In 2017, Essential Living announced plans of constructing the UK’s first modular BTR scheme in Greenwich known as ‘Union Wharf’. In an exclusive partnership with Elements Europe (modular construction specialist), each module of the Build to Rent development is to be completed, within seven days. The award-winning 23- storey tower is currently operational with 249 BTR units.
Conclusion
Although still driven by profit, IRR and yield, the Build to Rent sector can excel in leading a change for the better within the property development industry regarding the climate change crisis ― we can already see companies doing this. At UK BTR, we believe it will be one of the core metrics that will distinguish successful developments in the next decade.
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