Commentary
COMMENT | Does Liverpool have enough appetite for build-to-rent?
Construction is under way in Liverpool on seven major build-to-rent developments which will deliver over 1,900 apartments, bringing the total pipeline of BtR units to just under 3,300 at various stages of development across Merseyside, writes Ian Taylor of RSM.
The BtR concept goes beyond normal property renting, with the sales pitch focusing heavily on a ‘lifestyle, not a landlord’. It is envisaged that these schemes will incorporate a range of services included in the monthly rental such as 24-hour concierge, a gym, garden areas, leisure facilities, broadband and TV services.
The developers of these schemes are yet to release projected pricing for these apartments but, ahead of that, what evidence is there that there is an active letting market to support these projects?
A search of available rental properties within Liverpool city centre shows that there are currently around 1,100 vacant properties available for rent. Average monthly rentals sought for these properties ranges from £600 for a one bed, through to £795 for a two bed.
The BtR model closely resembles the ever-evolving market for purpose-built student accommodation where increased competition has driven developers to offer far more amenities, such as common areas, cinema rooms, on site gyms, to meet student expectation. Yet, despite this increased focus on service provision, the sheer volume of new-build student development which came on stream at the same time in and around the city has led to significant supply, chasing fewer, more price savvy students – with the inevitable pressure on price.
It is difficult to know what premium people would be prepared to pay for a high amenity rental property, but what is clear is that affordability will be a factor. Average Merseyside earnings, at around £23,000, would tend to suggest that there are not going to be high volumes of people with sufficient disposable incomes to afford rents that may be, on average, £700-£1,400 each month or more.
In addition, with more and more office space being transformed into residential property, Liverpool could face a tipping point where residential demand dries up as there are fewer people moving into the city for work.
The argument in favour of BtR is that it offers a high amenity service for a single monthly payment. It is further argued that BtR provides a realistic alternative to ownership in a market where mortgage availability and lack of deposit is hampering first time buyers. However, the average sale price in Liverpool is priced at £171,000, and assuming a 90% mortgage can be secured, the monthly mortgage cost would be around £800. On the face of it, ownership might be at least as cheap as renting.
With the supply of affordable property one of the key political issues of the moment, any initiative that increases the availability of residential property is welcome. BtR though, as a concept, remains something of an unknown quantity in Merseyside. The rental market is presently dominated by private and social landlords, and supply issues appear to be concentrated at the affordable end – a gap the Government is working hard to plug. It remains unknown whether there is a market that would necessitate the development of high-concept, high-cost residential property to let.
It is ultimately being pitched at Millennials – people unconcerned with property ownership and instead keen to secure an affordable city centre lifestyle. The question though is whether there are enough people, with sufficient earnings, to justify the volume of development in planning and under construction. Unsurprisingly, the property market is bullish, and actively promoting such development. As with any new concept, an element of caution is probably advisable.
- Ian Taylor is RSM’s head of real estate and construction in the North West
Is anyone really going to live in these new “communities” and new “villages? Are there enough students to fill these high-rise flats? Will all the Chinese speculators betting on these high-rises ever get their money back? Any will the lucky tenant dare to take a walk around the block late at night? The answer to all these questions is no. Something wrong is going on here. Has nobody else noticed or is it just another case of “Let’s make loads of money if we can. Surely there is nothing wrong with making money?”
By james hayes
This is a pattern familiar in London where it is reckoned that 50% of new-build housing is unoccupied and that is in a city where the average income is far higher than the north west. High rise cash boxes are a symptom of a dysfunctional housing market and an unreformed casino banking system. Will we never learn ?
By David Kells
It’s just not Liverpool though, how many are or will be empty in Manchester too? The risk is in all cities and towns and developer and buyer beware. Liverpool’s population seems to be growing at a smaller but steady rate and generally increasing in the City centre, so perhaps these new homes are needed. Correct me if I am wrong, but haven’t Manchester recently suspended their housing forecasts till the end of the year because they may have to review what the population increase real figures are? If this can happen to Vibrant Manchester, it makes you think or is there an oversupply already?
By Just saying
I think you answer your own question.
These schemes will inevitably compete with the ones next door and drive rents down as supply increases . There will be no discernible difference to PRS as time goes by. They could well work for investment funds that work for low annuity rates but even so will be high management and will not complete with corporate bonds as interest rates increase, as they will at some point.
Not a long term play for individual investors and a few failed schemes are showing that to be true
By Anonymous
It’s a quality analysis. What’s been allowed to happen in Liverpool is pure profit taking from a city that has had no leading direction for a decade. The city centre in effect is shrinking, despite the soaring numbers of students, as it becomes a town rather than city centre.
We can only speculate whether those whose projects now lie empty, with little sign of interest coming, knew this. But as Liverpool’s economy has been extracted and turned into empty flats, the logic is clear – for what reason would anyone move to Liverpool? To commute to Manchester??
That the collapse of schemes will hit greedy companies and individuals, who have been active players in this, hard is off little comfort to those of us left behind looking around at our wasteland of a former city centre, presided over by those who excel only in exploiting political apathy and ignorance.
By Mike
This is a bit of a nonsense article that is really just scaremongering. As are some of the ill informed comments. Liverpools city centre population has doubled in the last decade! As for its economy it has outgrown any other regional city in the UK apart from Edinburgh and Cardiff since 1998. These new rental communities are providing an additional choice for the city, fully managed by on-site teams as opposed to absent landlords. Meaning high quality spaces. If it includes your gym and workspaces ad lounges then surely you are going to pay more? WOuldnt this type of accommodation attract major employers as well in terms of staff retention? They are great developments to have in town that are being funded privately, by single owners, not overseas landlords so they are not going to abandon ship, also in a area where there currently isn’t many buildings so what’s the problem? You talk about affordable mortgages but doubt many people have the 20k lying around for the deposit. Also i doubt that 171,000k house has gym, lounge, cinema and concierge. It’s modertn living so get with the times and support the city ad people trying to invest in it. The UK has a massive housing deficit of c. 2m homes. More homes of better quality can only be a good thing as it will free up accommodation somewhere along the line so everyone can move up the chain. As for the guy who wrote the article, isn’t RSM just a business consultancy? You don’t ask a dentist for legal advice.
By XtotheZ
Liverpool city centre is growing massively partly because people enjoy being there! It has the advantage over rivals in that it merges with a World Heritage Waterfront, and the edges are blurred so the Waterfront spreads out for a couple of miles on the south side and with the plans for the north side this is likely to go the same way, as the Stanley Dock is connected up.
By Roscoe
XtotheZ, no one is disputing the value of quality developments, let alone where currently empty land lies. However, what is being spoken about is whether Liverpool can now fill them.
Yes the population has continued to grow. However, prior to the past decade this growth was fuelled not primarily by students but by working people. Now they are outnumbered, and that tells the tale, especially when what is supposed to be a residential block goes on sale and is still mostly empty over a year after completion. First hand observed fact, not ill informed comment.
You say the UK has a homes shortage. When one of its biggest cities has this going on, something has obviously and self evidently gone badly wrong.
People who work in shops, bars and cafes can’t afford fancy flats in town (rented or otherwise), while for city centre living to be attractive to the higher paid it has to be convenient for their work, to their satisfaction (ie commute free else what’s the point).
With no serious attempt to grow and strengthen Liverpool’s economy for a decade now, and once viable offices now turned into unoccupied shells (not to mention the city’s reputation ruined already by some of what has gone on) the absent demographics necessary to drive demand for homes is obvious.
The country’s 5th biggest city coming in behind Barnsley for inward investment should ring alarm bells, rather than pretence that all’s well.
By Mike
Liverpool’s strategy has to different, and build on its unique advantages, bringing people increasingly back to the centre. The wider Liverpool area is very spread out and there is a very large ‘ex-pat’ community that are coming back. Yes, Manchester gets lots of the big names but the balance will tip.
By Hightown
Rather than any single one of these attempts to defend the status quo being of comfort, what it highlights is that Liverpool really does not have a plan. There is no strategy, at least not for the benefit of the city.
The diaspora cannot return any more, because there is nothing for them to come back to. Even the quality of living aspects, which previously enabled people to look beyond the practical, are no longer there.
The diaspora are educated, resourceful and monied. They don’t want to exchange the lives they’ve built for themselves for a rented flat, and nor do they want to buy an average to low end flat in a party town where they can’t get any sleep, which is unpleasant to walk around, where the once genteel waterfront looks instead like some kind of dirty funfair and sounds like a pop concert, and a city which is littered with empty buildings with a propensity to end up as some kind of party venue and so on.
The 2000s didn’t look like much of a gamble, despite the property crunch, as the city did then have a vision and a strategy. The people who moved back in the 2000s did so for reasons which are now almost entirely absent, through being ruined for them. This is reflected in the flat-lining property prices.
I reserve my sympathy for those diaspora who gave it a go with the best of intentions, and the residents of the city who are left with a city centre that cannot sustainably support its population. Not for the companies and individuals who have tried to make fast and easy cash out of eating away at the once re-emerging commercial powerhouse that would have been Liverpool, and who now look likely to reap the rewards of coming too late to a party where there’s no fast profit left.
As I said in my first message, it’s of little comfort to those of us who care about the place though.
By Mike
We’ll see Mike, nothing is perfect in life and its a lot better than most of it’s rivals. My money would be on Liverpool out of the lot that’s for sure.
By Hightown
I have only just got around to reading this article and I am glad as I have enjoyed the comments too. I have to side with ‘XtotheZ’ in the main as many of the points made are spot on. We’ve got decent resi scale in both cities and Liverpool provided us with our first student scheme.
The difference with BtR and PRS is BtR is singularly owned, typically by an institution who already had £bns in real estate – at worst hundreds of £m’s. They are generally not here to make a quick buck – they have been since, 2012, working with Govt and the industry, on laying the ground work to be able to deploy their capital (typically pension and insurance funds) into resi real estate.
It makes absolutely common sense as we have a housing crisis – anyone who watched despatches tonight will hopefully have woken up to this. We need supply in all forms of tenure. There are now 128k BtR homes in the pipeline nationally, regions collectively now account for more than London. I estimate thats £28bn of real estate being delivered in BtR. Manchester and Liverpool lead the regions with Birmingham and Leeds in the top 5
What a statement for our cities and what a boost to the economy.
These schemes are amenity, service, and facility led but most importantly, they will put the customer front and centre of the industry, unlike lettings and management. not always the fault of the agent or landlord but leasehold and lettings, where the lettings mgt is fragamented with two dozen agents on a scheme will never be able to compete with a BtR on service. That service is not just about frills, its erradicating the pains of renters – fees, hefty deposits, wifi at move in, security, maintenance request timescales and resolution, long terms leases and security of tenure, onsite team who can answer your queries there and then.
The economy is going to wobble, political, economic, legal, environmental and social factors will face us all in the future – but anyone in the industry will know that extensive risk analysis has been done by BtR investors on impacts of their long term investment into residential real estate – its not all doom and gloom, far from it. We need homes and we need to change what is provided with the proven re-urbanisation of our cities with a vastly changed consumer/resident. BtR does this and BtR knows it needs to keep close to its customer, the resident, and tweek, change the proposition as their needs and wants change.
Yes – lots of what’s being described in the comments is not BtR, its developments built for overseas BtL investors that are primarily to rent. I call this PRS. It has a firm place in the market too – BtR has made these developers raise their game as has PBSA and consumer demands.
I find it absurd that a city wouldn’t welcome global investment into their real estate market. We should celebrate and be proud that Liverpool and Manchester attract so much interest from small to large investors from every inch of the globe.
One last point before affordability – Mcr and LPL have empty blocks like London. Utter garbage and every resi real estate player will back this up. If your apt has stood empty for more than 2 weeks, your (landlord/agent) expecting too much for the accommodation your renting. Our properties are full give or take a few but this has nothing to do with demand. It’s there in abundance.
As for affordability, when so much supply comes in, prices will obviously be impacted but the new, well located, well serviced schemes will be strong, its the older 10 ot 20 year old BtL schemes that will fall. Some feel to more reflective rent values after Manchester has seen 5 years of 8% year on year rises. What it will do is provide affordability as older stock is in reach of the key workers and post grads, and hopefully those who can share on min.wage or slightly above (wont comment on this but as a quick point, I hope the min. wage is at £9.50ph as quick as possible and our regions new and existing employers help move average wages up at good growth levels).
Continued re-urbanisation of our cities is a proven key ingredient for national prosperity and I think we’re doing well to change the face of renting in the city in the UK and believe the downsides of this transformation (weakening of older BtL) provide generally, good opportunities too (affordable renting or owner occupiers purchasing homes from ex BtL).
By Michael Howard @ urbanbubble