Over the past ten years, the number of private renters has doubled, with 20% of people now living in rented accommodation. There is a need to meet this increasing demand, and build to rent may provide the solution.
The rise of build to rent
Build to rent are new build developments designed specifically for residential lettings rather than sale and to help meet the increasing demand in the rental sector, build to rent is expected to more than double over the next five years, with the British Property Federation predicting a staggering 200,000 build to rent sites being developed within the next two years.
What’s the attraction of build to rent?
So why are more investors, including John Lewis Partnership, moving into the build to rent developments and why are such developments attracting more tenants?
• Demand for rental properties makes build to rent developments a good investment with the potential for healthy returns.
• Potential tax incentives for developers of build to rent properties
• For those who choose not to buy or can’t afford to, more bespoke developments offer more and better quality rental options.
• Developments are maintained by a single landlord, with a clear line of responsibility, complaints procedure and reassurance that these properties will be well maintained.
• Longer tenancy options offer security for tenants.
• Rent structures are clearly set out, including a basis for increases and no upfront fees such as admin charges, attractive to tenants.
Points of caution
As with any investment, there are points of caution for a would-be investor to consider:
• Tenants don’t always want to be locked into the longer tenancy terms which property owners prefer to guarantee their income.
• It isn’t easy to find lenders for these schemes, so the initial capital may have to come from the developer’s own resources, favouring larger investors.
• This is not a way to a quick return on investment.
• The high-end spec of build to rent properties makes them more expensive to rent and may exclude many potential tenants.
• Larger tenancy blocks need a professional management system in place to ensure legal obligations are being met, the property is well maintained, and tenant safety is protected.
Meeting future expectations
Build to rent developments are setting higher standards for rental accommodation, offering more facilities such as communal areas, gyms and workspaces and providing homes in areas with good local amenities, transport links and access to work.
The type of tenants they attract are also likely to expect a high standard in building management, so having the right processes in place to ensure standards keep being met, especially when you are making this level of investment, will be critical to ensure maximum occupancy.
Building specifically for a rental market should be a win-win for property owners and tenants so long as both offer what the other wants. It will be exciting to see the impact this sector has on the evolving rental market.
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