Quarterly Insights: Q2 2023 Lomond Investment Management

Expansion and diversification UK residential investment has materially changed in the last decade with the growing involvement of institutional investors. The Investment Property Forum (IPF) estimated that the value of the UK private rented sector (PRS) more than trebled between 2012 and 2018. In 2022 alone, institutions invested over £4bn.

Further to these targets, we aim to have 2,000 Build to Rent (both multifamily and single-family housing) units under Lomond Investment Management by the end of 2023.

Institutional investors are actively seeking opportunities across the UK, acquiring stock and building at scale, to bring a wide range of new products to market and setting new rent levels in many places. The presence of these large-scale operators and investors will continue. Based on the number of schemes currently in the planning pipeline, there could be 251,000 Build to Rent (BTR) homes across the UK in the next few years, expanding by 205% the stock of BTR homes already completed.

While up until now largely comprising multi-family city apartments, the sector is quickly expanding into high-quality, professionally-managed houses in suburban areas, known as single-family housing (SFH). H1 2023 saw the highest level of investment in SFH on record, at £408m.

LOMOND INVESTMENT MANAGEMENT

Acknowledging this growth, yet recognising the complexities and unique requirements of portfolio and asset management, we have built a strong team of experienced industry experts to successfully navigate the entire investment journey. Uniquely positioned to be able to draw on the local experience of our national network of over 60 branches, together with asset and property managers, Lomond Investment Management (LIM) provides an account-managed single point of contact service for developers and investors in the Build to Rent, single-family housing, lettings and offshore markets throughout the UK, irrespective of portfolio size and geographical location. With a strong pipeline, the number of these properties under LIM management is set to double by the end of 2023.

Lucy Jones, LIM Chief Operating Officer, said: “Benefitting from the national coverage of our network, Lomond Investment Management (LIM) offers a centrally-managed bespoke and innovative service to BTR and single-family housing providers, developers and investors focused on maximising return and mitigating risk.”

You can read more about our nationwide offerings deeper into this detailed article.

BUILD TO RENT MARKET

The number of homes in the institutional private rented sector has more than doubled in the past five years. Although BTR makes up just 2% of the UK’s private rental stock today, the schemes already in planning will raise that to 5% in the near future and to 10% in London.

Some experts predict it could reach 40% of all rental stock. Although early investment was concentrated in the capital, the regional markets have grown at twice the rate of London in the last 12 months. Today, 66% of homes in the BTR planning pipeline are in the regions and 68.5% of those under construction.

Initially, the focus was on urban apartments but there is growing interest in single-family housing in more suburban locations. This is reflected in the demographics. 58% of renters in BTR are couples or sharers compared to 40% in the wider private rented sector (PRS). In other ways, people who live in BTR mirror the wider renter population in age and income. The fact that more than one in five families with dependent children live in the PRS underpins the demand for single-family housing. (Census 2021).

Two-thirds of renters believe a sense of community is important, while pleasant neighbours matter for 87%, rating more highly than broadband speed, a parking space, or garden¹.

The Build to Rent sector has a stated ambition to transform the renter experience. Homes are purpose-built for rental and professionally managed by dedicated operators, adopting customer service values inherent in the hospitality sector. Providers actively promote community and aim to create high-quality living environments where residents choose to stay for longer.

Although eight in ten renters sign an initial lease for one year or less, more than half would welcome a longer lease and one in six (18%) would pay extra to secure a property for longer, rising to nearly one in four (23%) for families¹. Virtually all BTR providers offer lease lengths of three years, and over half (53%) of tenancies are renewed².

WHY INVEST IN BUILD TO RENT

Institutional investment has historically focussed on the apartment market. However, families constitute a large proportion of the private rented sector and this is a growth area for Build to Rent.

One of the attractive features of Build to Rent is the choice of lease lengths. 92% of the developments recently surveyed offered lease lengths of three years. In the current environment of rising rents, longer lease lengths provide security and certainty for renters. Longer leases also give operators a stable income and can reduce void periods.

Community, convenience, and amenities are appealing aspects of BTR, particularly for singles and couples. A recent survey of BTR developments identified the most common facilities included in current developments. In addition to the amenities below, over half of developments surveyed included a residents’ lounge, co-working or meeting spaces and a gym in their offer. Commonly included in BTR rents:

• (88%) Social calendar of events
• (85%) Concierge service
• (81%) Shared garden and/or roof terrace
• (79%) Parcel acceptance/storage
• (69%) 24/7 security

WHAT WE OFFER

Our bespoke, innovative solutions are designed to maximise return and mitigate risk for investors seeking a trusted partner to manage the specialist processes of marketing and managing all aspects of their property portfolios. We truly understand the complexities and unique requirements of all aspects of portfolio and asset management.

MARKETING AND LEASE UP

• Development and Scheme pricing
• Strategic approach to maximise occupancy whilst maintaining headline rents
• Letting team available to work on and off site
• Design, consultancy and furnishing solutions
• Tenancy administration and move in services

MANAGEMENT

• Mobilisation
• Operational management strategy
• Combined building and apartment management
• Reactive and longer-term maintenance plans
• Block and Estates services
• Health and Safety and statutory compliance
• Budget preparation and management
• Refurbishment and consultancy services

Lomond Investment Management offer national coverage, centrally managed with a dedicated team, tailored service, and integrated platforms. To learn more about our offerings and how we can help you maximise your investments, contact: lim@lomond.group

 

¹ Dataloft, Property Academy Renter Survey 2022.

² Who Lives in Build to Rent, BPF, UKAA & BusinessLDN, Dataloft.