How the BTR sector is adapting to political pressure

The third annual GRI Residential Europe 2019 gathered leading residential real estate investors and developers in London to discuss how the build to rent market is thriving under political pressure and demographic changes. 

Rented accommodation’s time to shine?

The main takeaway from the behind closed door round-table discussions was the next generation of build-to-rent (BTR), and what kind of risk/growth can people expect. Certainly with first-time buyer average age reaching the mid 30s and urbanisation driving up prices in populated areas, millenials are beginning to look at rental for long term accommodation. 

The BTR sector in the UK is one of the best in the world, and ties in with student housing, multifamily, and coliving and its other niche assets. With more focus on real estate as a service, considerable changes towards operational services have been demanded as people want to feel like they get more for their money. Some suggested that this came from student housing operators which is understandable as the demographic changes and Gen Z market impacts this sector first. 

Understanding demographics was said to be one of the most important things in the rented market. For instance, a student will be primarily looking at affordability and proximity to universities, whereas a millennial is probably looking more for efficiency and proximity to public transport links. For Gen X and baby boomers, they’re looking much more for genuine value and control over the asset. It’s important to understand your market and provide what they want. 

Election cycle adding unwelcome risk to UK market

Regulatory issues, political will and affordability were some of the key concerns addressed, while some highlighted that political volatility was putting a damper on investment appetite in the UK. Everyone agreed that British politics hadn’t been this volatile since the war, and the upcoming election was perhaps shaping up to be the most consequential in modern times - especially for real estate. 

But have long-term investors prepared for a swing in political parties? Many might think so, but they also thought they were prepared for the result of the 2016 referendum. Now they must consider the possibility of Labour’s proposed rent caps - a similar model used in Berlin had one of Germany’s leading residential real estate companies’ drop by 15% in share prices. But with affordability already so low, something clearly needs to give politically in terms of people’s income. 

Ireland’s and Iberia’s residential market heating up?

Participants took the opportunity to assess the risk profiles of Europe’s biggest investment hotspots. For the room, Dublin especially was hot - even though for the private rented sector the land was still quite expensive. The biggest challenge that Ireland as a whole faces now is supply. According to one member, the trend of young people emigrating was rapidly slowing down, facilitating much more of a need for student and BTR housing. Millennials, the generation in which just under 50% of them look to leave a job within two years, also favour BTR as it allows them the freedom to move around the country. 

Spain and Portugal were also markets where investors were interested in, as a lack of stock paired with an erasmus hotspot certainly provides a great opportunity to tap into a gap in the market in terms of student housing and build-to-rent. 
 

For more insight into the nuances of the UK market and the upcoming flourishing of the Irish market, British and Irish GRI takes place in June, 2020. For further understanding of the German residential market, Deustche GRI takes place in May, 2020.

Article by Matt Harris