Build-to-rent (BTR) is gathering momentum in the UK, with investment in the sector reaching £2.4bn in 2017, 33 per cent up on the previous year.
These institutional-grade assets are being driven by the strong underlying supply/demand fundamentals in the housing market and the desire by institutions to access returns linked to earnings.
The role BTR properties play in local housing markets has increased in importance as the sector has grown, and operators are now looking beyond London for new opportunities. According to the BPF’s figures, the regions now account for 62 per cent of all BTR units under construction. In the Midlands, the mid-market space is proving of most interest to investors and developers, in line with anticipated tenant demand.
The new breed of institutionally-funded products focus on good design, bespoke management and greater tenure mix and security, offering an alternative to traditional private rented stock. Getting the product exactly right, however, is a challenge for BTR investors and developers. Yet if they can inﬂuence the design, mix and specification in a way that ultimately enhances the investment returns from the completed and operational stock, it’s a winning endeavour.
In the Midlands, we’re seeing high competition for sites, planning permissions progressing rapidly, and a buoyant construction market that makes contractors harder to secure. These competitive conditions, together with the need to generate revenue at the accurate completion date, necessitates a properly-prepared site and a tightly-controlled, cost-efficient design.
Contractors will naturally be concerned with the risks inherent in the site, and will price accordingly. A higher number of bids, and more competitive ones, are likely to be forthcoming if appropriate surveys and site enabling works are carried out, with a high quality and well-coordinated design prepared prior to engaging with the market.
It’s crucial to prepare a brief for a cost efficient design in the early stages of project development. Get the following elements right, and it can make all the difference in terms of maximising the cost-to-value relationship:
- Apartment size and mix appropriate to the location and target market.
- Consider plan shape, internal efficiency, vertical and horizontal circulation strategy.
- Maximise the density within economic, site and regulatory constraints.
- Early establishment of internal specification design principles (including M&E systems), appropriate to the local rental market.
- Clearly-defined target cost and design principles for external envelope, established before the design starts.
- Specification that minimises the ‘cost in use’ of an asset that will be maintained by the operator for many years.
- Phasing strategy that allows staged handovers to the operator.
- Consider the extent of amenity space areas (lounges, gyms, shared working space etc) to create a unique selling point for the development.
- Design balanced with value, maximising net to gross ﬂoor ratio when providing amenity spaces.
Defining what can be achieved cost effectively will avoid the cost and time associated with abortive design and the need to repeat the drawings.
As one of the earliest delivery partners for BTR, Faithful+Gould has proactively managed the costs for a range of schemes in the Midlands and throughout the UK. Our team provides clients with a design cost brief, covering materials, mechanical and electrical services, targets for plan shape and internal efficiency, and example outline specifications appropriate to the product. If the design team can work to these parameters, project viability can be established.
We then ensure that the design develops in line with the brief, identifying divergence at each cost planning stage. We develop a cost risk register in the early stages of the design, to identify key project risks and ways to reduce the perceived risks before engaging with the market. This approach effectively de-risks the site and the design, and provides the client with a scheme design that is both financially viable and deliverable.
We are well positioned to support clients in making informed decisions around planning, designing, funding, operating and maintaining assets, ultimately achieving best value. We understand the degree of variance among BTR products, compared with other forms of tenure, and we help our clients make sense of the associated variance in cost.