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