Residential Letting and Management
Overview
The first quarter of 2023 saw £820M transacted in UK Build to Rent with CBRE quoting provisional numbers of £2.1Bn for the first 6 months of the year. Whilst a reduction in transactions was expected considering the economic upheaval experienced during the final half of 2022 it is encouraging that Single Family Housing (SFH) enjoyed a record quarter – cementing a view that Residential Investment is seen as a “go-to” investment class.
Who is Active?
Allsop’s management of The Thistle Portfolio latterly named as Project Domus provides a clear indicator there is still significant institutional appetite for Single Family assets with Goldman Sachs selling the portfolio to PGIM in the first quarter of 2023.
Indeed, Allsop manage and operate a number of significant Single Family housing schemes owned by PGIM, Packaged Living, Columbia Threadneedle and Savills Investment Management all of which are providing further demonstrable credentials for an asset class we believe will rapidly overtake BtR Multi-Family.
Headline Deals
Over the course of 2023 Allsop will launch a further six Single Family schemes across the UK. The market conditions for institutional landlords are strong – an already chronic undersupply of stock coupled with various BTL landlords exiting the market due to rising interest rates compounded by a less favourable tax environment is reducing supply in the marketplace. This in combination with the less favourable purchase conditions for would be homeowners means demand side pressures are increasing.
Additionally, as these brand new, professionally managed, high quality homes hit the market the customer-base is ready to hoover them up, mirroring those experiences of Multi-Family. Allsop are now managing waiting lists on all our Single Family assets as we wait for future phases to handover. This demand is universal across all 20+ housing estates showing this is a national not regional issue.
Whilst Allsop is outperforming underwrite targets we continue to closely monitor affordability rates as the cost-of-living crisis and the associated inflationary pressures hit household incomes. To date the impact on affordability ratios has been less pronounced (22% of household income is spent on rent) in Single Family housing where traditionally households do spend a smaller proportion of their household income compared to BtR.
Our Multi-Family assets are also thriving and certainly no stranger to success. These multi-award-winning assets continue to enjoy low voids, strong rental growth and importantly less churn, driven by excellent customer service but also a reticence to move home in what is an economically uncertain period for many people.
Demand has not diminished for what some perceive as a luxury product, BtR Multi-Family is still proving its investment case with low voids and strong rental growth. Allsop are lucky enough to be delivering our latest scheme, EDA in Salford Quays and whilst viewings are about to commence, we already have a huge waiting list of interested applicants ready to reserve as soon as we let them view.
EDA is due to go live in September of this year in what is arguably the most competitive market for BtR in the UK. Rental growth this year across Allsop managed stock in Manchester exceeds 7% again showing the strong appetite for professionally managed, amenitised stock. Allsop’s role is to ensure the rents and our schemes continue to present as excellent value; customer service is something all BtR operators will need to focus on as our residents assess how and what they spend their money on.
Direction of Travel
According to the BPF there are 251,208 Build-to-Rent homes in the UK, including both London and the regions, of which 78,717 are complete, 72,244 under construction and 113,379 in planning.
In London, there are a total of 96,184 units whilst outside London, that number increases to 155,024 units. We expect that as Single Family housing becomes more common place the disparity between London and the regions will become even greater.
Having recently attended the BPF conference the economic outlook appears to be one where interest rates will remain high for the next couple of years at least whilst quantitative tapering takes place. A period of recalibration will therefore be required for deals to be unlocked. What is clear is the appetite is there for investors in the residential space and so we would expect the deal rates seen in the first half of the year are not a flash in the pan.