German-style living is coming to London. Nearly half of Germans live in purpose-built, private sector rental homes, constructed and managed by institutional investors. Now, this type of accommodation is starting to appear in Britain, especially in the capital, which has the country’s biggest private rented sector.
The Government is providing property developers with £1 billion in direct investment from a Build to Rent Fund and £10 billion in loan guarantees to build private rental homes to help ease the country’s housing shortage.
The first 10,000 homes constructed with this Government backing will appear in 2015, a quarter of them in London. Forty-five developers and housing associations will receive support from the Build to Rent Fund in its first phase. Financial institutions are investing in build-to-rent, including Prupim, which is buying 500 Berkeley Homes-built rental properties in London and the South East. Locations include Saffron Square in Croydon and Woodberry Down, Hackney. Average rents will be £780 a month for studios.
Developer Essential Living plans to use US pension fund money to build 5,000 rental homes in and around the capital over the next decade. Build-to-rent will help expand London’s private rented sector. In inner London, property consultancy Savills forecasts that the number of residents living in privately rented accommodation will rise from 40 per cent now to 50 per cent by 2017.
How build-to-rent could benefit tenants
Build-to-rent has several benefits for tenants. First, it will provide more rental homes to choose from. Second, these purpose-built blocks will be professionally managed. Third, tenants will have greater security of tenure than in the buy-to-let sector, where landlords may sell or move into the property themselves after a few years.
Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, says build-to-rent schemes could raise private rented sector standards. “Ultimately, a high-quality offering with more security could become the benchmark for the sector if institutions rise to the challenge,” he says.
London’s property developers started moving into the private rented sector after residential rents reached record highs in 2011. At Neo Bankside — a set of completed apartments next to the Tate Modern art gallery — joint venture partners Native Land and Grosvenor Estates are letting properties they had initially planned to sell, effectively making part of the scheme build-to-rent. One-bedroom apartments are available to rent from £650 a week through Knight Frank.
Grainger, London’s biggest independent landlord, will let 100 flats being constructed at London Road, Barking, at rents starting from approximately £900 a month for one-bedders, from 2015. The company plans to let out 50 flats at two developments in Kensington and Chelsea from late 2016 in a joint venture with the borough council. Rents are expected to start at £2,100 a month for one-bedroom flats. Prospective tenants can contact Grainger.
Private rental flats are being created at mixed-use schemes by developers who want to manage projects after completion. At Howick Place, Victoria, joint venture developers Doughty Hanson and Terrace Hill have built a mixed-use scheme of offices, shops and 23 apartments to let. Rents for the remaining five un-let apartments start at £650 per week for furnished, two-bedroom homes.
“By owning and renting flats, the landlord can supervise both tenants and the overall appearance of the building,” says Jane Harrison, senior associate at Doughty Hanson. “Given the increase in mixed-use schemes in central London, I expect to see greater quantities of new apartments being rented out rather than sold off.”
Lettings market competition boost
Today’s lettings market is dominated by buy-to-let investors, with only one per cent of landlords owning more than one rental property. Buy-to-let investors will have to improve their stock to compete for tenants with these powerful institutions entering the market, says James Coghill, head of residential capital markets at Savills.
“Relocation agents and corporate tenants are now seeking properties that are professionally managed and providing a quality service,” says Coghill. However, he warns that build-to-rent is unlikely to end London’s housing shortage: “The under-supply of housing in London is so acute that build-to-let is still a relative drop in the ocean,” he says.