Last updated: 9th November 2021
Build to rent. You must have heard of it by now.
It’s your newest competitor as a landlord.
But do you really know what it is and what it means for private landlords and the property market?
In this article, we’re going to tell you;
It may seem self-explanatory. And in the past, it was as straightforward as the name suggested.
Build to rent was the term used to describe any new building with the ultimate aim of renting it out to tenants.
But as with most things in property, this has evolved over time.
Fast forward to today, we’ve got big corporations moving into the sector. So, a truer representation of the term ‘build to rent’ would be any development owned by a large corporation (otherwise known as a corporate landlord) that’s rented out to tenants.
It no longer needs to actually be a new building – if a bank buys a building with the intention of moving tenants in, it’s classified as build to rent.
And it may have taken a while, but we’re starting to see a steep rise in build to rent in the UK right now.
In May 2021, there were 188,000 build to rent homes – either tenanted or in planning. That’s a 135% rise since 2017.
188,000 is still only 1% of the market, but the increase is an undeniable one.
Until recently, the majority of corporations involved in build to rent were pension funds. The likes of Aviva and Legal & General will be names you’re familiar with.
And it should be easy to see why. Pension funds require low-risk investments to ensure capital returns.
Pension funds also have the benefit of being long-term investments, and so they could put money into a new property development and stick around long enough to see long-term returns and capital growth.
Essentially, they invested in property for reasons that a lot of private investors do – steady income and capital appreciation.
However, over the last year, we’ve seen big high street businesses getting involved in the action.
Traditional banks like Lloyds Bank and even high street giants like John Lewis are vying for a piece of the pie for the same reasons as pension funds do.
It’s also relevant, particularly in a post-pandemic world, to note the diversification benefits for these corporations too.
Rental income is a relatively fool proof revenue stream. Far more fool proof than retail has proven to be since March 2020, especially.
Having a predictable, inflation-linked income is undoubtedly attractive to these corporations.
An increase in the number of rental properties on the market will always have a positive impact on tenants.
That’s because they’ll have more choice when it comes to location, style and cost.
But there are other benefits with built to rent landlords which you may want to pay attention to:
How should you feel about the influx of build to rent developments stealing the limelight and snatching your tenants?
We’re ever the optimists, so it won’t come as a surprise when we tell you that you should see the evolving build to rent market as a great opportunity.
Yes, landlords will need to become more flexible in their offering to tenants if they want to compete with the bigger corporations. But this is something that good landlords should already be doing when faced with changing market conditions.
Take a look at the student tenant market. Bigger corporations moved in with fancier offerings, but that didn’t entirely eradicate the private landlords who’d been there for years.
Instead, those landlords levelled up what they could provide prospective tenants, and the good ones successfully offered a great alternative to the big-business landlords.
This is what private landlords in the UK are going to have to do.
Adapt, or risk being left behind.
Up until now, build to rent has been focussed solely on urban cities.
And corporate landlords have been targeting primarily the top 10% of renters with their offering.
But there’s also been an increase in build to rent targeting the middle-market of tenants.
It stands to reason that wherever there’s demand for rented housing, build to rent is likely to follow.
And the wider-reaching impact on the industry is one that we’re very much championing… rising standards – for both landlords and tenants alike.
This change isn’t going to happen overnight, but any smart property investor will be taking notes and seeing how they can make these rising trends swing in their favour instead of being swallowed up.
Now, if your portfolio is ticking along nicely but you still want a piece of the build to rent action, there are property funds that allow you to do this.
We’ve done a handy video about property funds here.
And if you’re still interested after watching that, go here to check out Portfolio and join the waitlist.