Build to rent flats are post-Brexit winners

Uncertainty has seeped into almost every area of our lives since the vote to leave the EU and the property market is feeling the effects.

Shares in many housebuilding firms have fallen and buyers and sellers are exercising caution. While the jitters are hindering some sectors, the nascent build-to-rent industry looks set to keep on growing.

Investors are pushing ahead with plans for the plush amenity-rich apartment blocks that will revolutionise the rental market. A small number of schemes are up and running but another 6,000 flats are contracted to be built in the UK and another 30,000 homes are in the pipeline.

Graham Bates, CEO of Leeds-based LIV Group, specialises in strategic advice and management for build-to-rent schemes, also known as PRS, private rented sector. He is working with investors on projects that could deliver 3,500 rental flats in Leeds in the next three to four years. He believes that while there is some nervousness in the market, mainly from overseas, it will be short-lived: “For large-scale build-to-rent we think this is the ‘perfect storm’. Land prices in particular are likely to fall and construction prices could ease whilst rents will remain strong, so major institutional investors will benefit from improved investment yields,” says Graham. “Domestic UK funds still have to be invested and billions of pounds is allocated for build-to-rent. If anything the underlying investment case has been strengthened further because those planning the first steps on the housing ladder are likely to hold back and continue renting.”

He adds that the majority of major investors are still keen on build-to-rent, with a number of fund managers becoming more bullish post Brexit.

“We have every expectation that the 3,500 apartments in Leeds will come forward. The fact is that we have a growing and permanent population of private renters and the major investors know this.”

Alex Greaves, Head of Residential Investment at M&G Real Estate, agrees. M&G, along with Aviva, recently suspended its retail property fund but confidence in the residential rental sector is high and M&G believe that build-to-rent offers a good long-term income stream.

It has 1,200 apartments underway, with projects in London, Manchester, Leeds and Birmingham on the cards.

Alex says: “I started with funding from two investors and now there are 19, including both UK and international pension funds and insurers. If anything we see the opportunity to get bigger post Brexit. We are an income-based investor focused on cash flow so while capital values are likely to see some movement we don’t see that as a problem.”

He adds that build-to-rent’s target market, young professional renters, is growing. Estimates by PwC back this up. The accountancy firm forecasts that by 2025 only 26 per cent of 20 to 39-year-olds will own their own home.

While rents in PRS schemes could be up to 20 per cent higher than most other city centre flats, they boast impressive amenities and security of tenure as investors are in it for the long-term. M&G’s Acton Gardens scheme in London will have a gym, free wi-fi, amenity rooms, allotments on the roof and a car sharing facility.

One of the first build-to-rent schemes in Leeds will be at Quarry Hill, where Moda Living plans to build 705 apartments. It should be on site in early 2017 with the first homes ready to rent by 2019.

Moda, borne out of Yorkshire construction firm Caddick, has 5,000 flats in the pipeline across the UK, including its Angel Gardens development in Manchester. Managing director Tony Brooks says: “A post-Brexit world will present good opportunities for PRS in the UK. I see it as a safe port in a storm for property investors looking for long-term stable income. We are actively pursuing the acquisition of more sites in London and the key regional cities since Brexit, and we are pressing on with developments in Manchester, Liverpool and Leeds over the next few months.

“Many of our investors are from overseas so they will see UK opportunities as cheaper than they were a few weeks ago.”