The Coronavirus pandemic is reshaping our lives in so many ways and the property industry is only just beginning to understand the full consequences for our sector. There has been much discussion about the future of commercial and retail assets but one less-debated area is what Covid-19 could mean for build to rent (BTR).
Redrawing the BTR map
The first, significant shift we could see is the lockdown’s impact on consumer preferences and needs, with knock-on effects for the design and location of BTR schemes. There is already evidence of increased appetite among residential buyers for more suburban homes and a similar pattern could emerge in BTR as people prioritise access to green space. Searches on Zoopla for homes for sale in rural locations were up 68 per cent during the first week of May compared with early March.
With more consumers seeking suburban and country locations, this could speed up the trend towards single-family BTR dwellings as opposed to the more traditional and urban-focused, multi-family product. This would mark a step change in the pattern of investment to date, with investors pushing into new regional markets and requiring new development and leasing strategies as a result.
Conversely, as property firms right-size their exposure to retail and commercial markets, new opportunities could open up in city centres. With demand for retail units and office space dampened by accelerated growth in online shopping and a longer-term move to home working, asset owners with vacant units on their hands could explore conversions to BTR schemes, following a more European model with city centre homes above shops and workspaces. This would certainly tap into debates around commuting and reducing people’s exposure to the virus on public transport, as well as bringing life into what may otherwise be empty high streets.
However, there are still obstacles to overcome for this model, not least negative perceptions around permitted development and office to residential conversions. In the short term, I think we are probably more likely to see investors explore suburban development opportunities.
We need to encourage more house builders and developers to return to site as soon as it is safe, getting construction back to pre – Covid levels, and I am hopeful we will see a reversion to normality relatively quickly. We may however see a switch in focus from build to sell to build to rent, owing to a slowdown in housing sales as the market softens in the aftermath of Covid pandemic, and I expect the Brexit negotiations later in the year to show an impact here too.
There is a clear opportunity for developers to accelerate their adoption of modern methods of construction to get their pipelines moving again. There are other important benefits, as such providers can far more easily manage their factories, conditions and outputs to account for social distancing and holistic worker safety.
Timescales for delivery of homes and apartments built using modular construction are also greatly compressed, which can only serve to benefit the entire market in the midst of a housing crisis when we need to supply and increased volume of better quality and sustainable living assets, more rapidly.
Designing for a new way of living
Changes are likely to come not just in terms of where but how people are living – and what they want from their homes. The BTR offer has conventionally been shaped around a more convenient, more secure and higher quality rental model, with residents benefiting from access to shared amenities. This central appeal could be modified post Covid-19.
Quality of product and security of tenure are likely to come even more to the fore as renters prepare for increased working from home. Meanwhile internal communal facilities will take a back seat for customers in favour of shared or private outdoor space. In particular, fast broadband and good mobile phone signal are likely to rise up customers’ wish lists, along with desk space – spare bedrooms will now be marketed as home office space.
A new model for management
All of this is likely to mean a reshaping of asset management strategies for BTR investors, developers and their partners. Successful BTR schemes rely on two things: positive customer experience and an understanding of asset performance over the long term to predict returns.
As consumer priorities evolve, having a clear understanding of what matters to them will be crucial for asset design, leasing and resident retention. Looking to building performance and management, as investors and developers consider new markets and modified designs, the importance of sector data to help forecast future trends and likely returns will only become ever more pressing.
Technology has a critical part to play in all this, from virtual viewings which support leasing, to digital systems to keep residents engaged and connect communities, to apps to inform asset owners about the real-time performance of their portfolios. At Navana we are already building our digital capabilities to help our partners unlock these opportunities and weather the challenges ahead.
Katherine Rose, Director of BTR and PRS