According to the most recent Government paper on the issue “Building the New Private Rented Sector: Issues and prospects, the Private Rental Sector (PRS) is now the second largest housing tenure in England, having overtaken social housing in 2011.
Since 2010, the Government has focused on institutional investment in the PRS to boost supply and answer the challenges of the housing crisis in the UK.
With the majority of PRS homes in the country supplied to market by buy-to-let landlords, Tower Eight explores the significant cost issues around the Build to Rent model and how landlords can mitigate them:
- Building Fabric & Balconies
There is the need to balance the architectural aspect, planning element and greater consideration around durability of materials, their replacement and clearing. The operational considerations should be also be reviewed to include greater provision for cleaning and maintenance. It will come down to a balance between practical access and the aesthetics of the scheme. But the ability to facilitate the ongoing maintenance of the building will inevitably be much more of a consideration than on scheme with units for sale.
- Modular Components
As the BTR model expands, there will be growth in the supply chain that services this element of the market and with this will come more specialisation of components. In turn, this will reduce build time and cost as the sector matures. As the sector evolves and suitable components become standardised, and where there is repetition across schemes, then the costs will start coming down even more in the area.
- Apartment Fit Out
BTR schemes will generate a significant body of work around the life cycle costing of wall and floor finishes against the refresh period of units. A key element of this assessment will be the use of durable products that can be easily replaced due to high usage and different occupiers over the lifecycle of the scheme. This will also involve the substitution of high end fixtures for those that offer more durability, much as we see a balance between practicality and quality in the hotel model.
- Amenity Spaces & Offering
There needs to be a balance between communal space and the additional facilities that are provided within the scheme to those that are available locally. Arguably, PRS planners need to work even harder to generate a sense of place and introduce elements that encourage long-term occupancy, while also developing a sense of longer term brand loyalty.
It is about understanding how flexible these spaces, are and how could they be adjusted to reflect demand in the future. In recognition of the need to adapt to tenant demand, amenity areas should be kept flexible as use may change depending on demand and demographic of tenant base – this should be incorporated in design so that the cost of change is kept minimal.
- Communal areas
Proper consideration of the design facets of communal areas will extend the tenants’ demise. If it retains customers for the long-term and improves a sense of “brand” then it will need to be in the costs. This will also lead to other considerations such as the introduction of natural lighting in communal areas and furnishing requirements.
This initial outlay may ultimately benefit the scheme by enticing a different kind of end user, and one that is more engaged with the property. And this carries benefits both in the short and long term, if the scheme can operate at a different pricing level and retain clients for the long term.
- Unit Sizes & Mix
Both the mixture of units on the scheme and their sizes will have to be led by higher density schemes to ensure the fundamental business case stacks up. In a market where land values are as high as they are, the higher unit density will increase the revenue generated per sq. ft. and, ultimately, make these schemes competitive with the residential sales model. The schemes will have to be designed for functionality and be highly efficient with unit sizes closely aligned to rental value and price points that have been scrupulously researched.
- Mechanical Electrical and Public Health Systems
The careful adoption of the right technology will ensure that elements of these schemes do not become quickly obsolete as that would obviously impact on their ability to provide a long term solution for tenants. And, it will also affect ongoing rental value and drive up the cost of refurbishments so they must be futureproofed from the outset.
To gain significant competitive advantage and deliver on the necessary housing numbers, developers need to be thinking about seven or eight schemes at a time and benefit from the ensuing economies of scale. This will facilitate programme wide procurement and service level agreements, all of which we contribute to scalability and a lower cost model.
As the operator of the space, the developer will fall liable for the upkeep of these goods – that is the way many PRS schemes are now going – and ensuring sufficient warranties will minimise that risk but increase costs in the short-term. Latent defects insurance will also come into play too by which to recover the costs of replacing, strengthening or repairing the site if an inherent defect is discovered.
Responsibility will sit with the operator of PRS schemes to maintain its standards, so the ability to replace fixtures and fittings, and the durability of these items must be factored in. Similarly the longevity of the building itself must be maintained as these schemes are a long-term play and any signs of fatigue will impact on the long-term rent-ability of the scheme. All of these elements will play a key role in developing and maintaining the brand of the schemes and the operators responsible for them.
The PRS has changed so much in recent years but our experience of the market would suggest that the real force of change is set for the next few years. The industry-approach to PRS development is evolving. Developers are now taking a different approach to amenity space, planning for long-term engagement with the client and, in essence, building brands for the future.
This approach appeals to both investors and tenants alike, but for it to be truly successful does require it will change the approach to both development costs and operational costs. Ultimately the consumer is already asking more questions of PRS developments and developers need to be ready to answer them. A progressive approach to these schemes is the only way forward and understanding the investment required to go alongside this approach is critical to success.
TowerEight is an experienced, independent, project and cost management consultancy, which provides first class services to the construction and property industry. The team pride themselves on finding intelligent solutions for our clients and conduct themselves with a “total commitment to deliver as trusted partners”. With a team of over 70 based in headquarters on London’s Great Portland Street, TowerEight offers a range of services including project management, cost management, project monitoring, and acquisition support services.