Managing all those
tenants, fixing all those leaks, servicing all those lifts – why bother with
that when you could own a prime office building with a couple of blue-chip
tenants and leave the maintenance to them? Or shopping centres, or sheds, or
car parks? Whatever, but never residential.
course was strange, because almost everywhere else in the world, residential
formed a significant part of most institutional property portfolios.
along came the 2007 crash, when the banks withdrew all funding for speculative
residential developments. This was a strange strategy because there was a
massive supply-demand imbalance in the residential market and any disruption in
the supply chain would just make matters worse. And most people still had jobs
and a decent income.
the few good things to come out of the 2008 financial crisis has been the
build-to-rent (BTR) sector. Various operators saw that the UK property market
was changing as first-time buyers faced an unsustainable wall of debt in order
to secure the deeds to their first home. It was time to introduce a new product
to the UK market.
operators appeared in 2012 and now have a solid eight years of experience in a
residential market heavily slanted in favour of build-to-sell. The sales market
has Help to Buy and record low interest rates, while BTR operators pay double
SDLT, annual licence fees and full council tax on empty flats. Despite these
hurdles, the sector is thriving.
2020, the UK went into lockdown. Unprecedented, unplanned and, for many, a
financial disaster. Traditional property investments were hit hard.
office tenants will be looking to reduce floorspace as they steer their
workforce to more flexible working patterns. Landlords must expect vacancy
rates to climb as planned lease extensions are renegotiated.
hospitality and leisure investments have all suffered catastrophic reductions
in income, leading to CVAs or total business closure. At the very least,
tenants are looking to renegotiate leases to introduce turnover rents.
have done well, riding on the back of the thriving online sales market as
homebound shoppers rely on Amazon, Ocado and eBay.
the top of the list is the BTR sector. A recent BPF survey logged rent
collection in May and June by 21 BTR operators at more than 80% of rent
demanded, with 50% of those above 95%.
average institutional BTR investment would contain a minimum of 100 apartments,
housing more than 200 tenants. Each tenant is jointly responsible for the rent
on their apartment, spreading the risk a long way.
a responsible landlord will have carried out thorough financial referencing
checks on each tenant and ensured they are earning at least three times
the rent. As a result of this due diligence, Fizzy Living has navigated the
pandemic at 98% occupancy and 97% of rent collected.
that has been the positive tenant reviews across the sector as reported by
HomeViews. This is particularly the case in assets owned by institutions where
there is a recognised professional management platform with onsite staff, who
have continued to manage the day-to-day operation of their buildings while
employing social distancing measures.
matured into a popular, safe and flexible product, with proven resilience to
the sort of market turbulence that has so seriously impacted other sectors. We
expect a surge in investment activity as opportunities planned for sale are
remodelled for long-term rental.