North West PRS | Pandemic no match for rampant sector
The private rented sector remains extremely popular with occupiers and investors despite a turbulent 12 months and looks set to grow exponentially, even as the end product is tweaked to serve residents’ changing needs.
Experts at a Place North West event discussed why the sector had fared so well compared to others, what PRS might look like in a post-pandemic world, and the growth areas that can be tapped into.
Presentation | Manchester’s PRS boom
urbanbubble is examining the city’s residential sector in detail, by tracking rents over various periods and logging new and emerging developments. Ed Howe, research manager at urbanbubble, shared early findings from the research exclusively at this event, to highlight the dramatic growth of the sector in the last five years.
There are currently 5,893 build-to-rent apartments across 19 specialist BTR communities in Manchester, a huge increase compared to 2016 when there were just 500 BTR homes, according to Howe.
Other key points:
- 7,000 new jobs were created in Manchester last year, far outweighing the number of homes created and thus quashing fears of oversupply of residential properties
- The last year has seen rents for three-bedroom apartments or houses with two-bedrooms or more in the city increase by 3.3% and 8.5% respectively, despite the pandemic
- Rents for studios and two-bedroom apartments have declined in last 12 months as renters opt for larger homes with outdoor space
- There was a 3% increase in the number of lettings in 2020 compared to the previous two years
- There are 5,000 PRS apartments in the pipeline in Manchester and the sector is projected to treble in size by 2026
Panel – The rise of rental resi
Michael Howard, managing director, urbanbubble
Lee Hill, residential director, JLL
Peter Rowe, development manager, Packaged Living
Gemma Leonard, partner, DAC Beachcroft
Howard said tenants would pay a premium for apartments that exceed minimum space requirements.
“People want space. [Minimum space standards] create a bottom of the barrel and developers are rushing to it. If we can create homes that have got 1,000 sq ft two-bedroom apartments, people will pay more.”
He added that towns such as Oldham, Rochdale and Stockport could set a precedent for taking what works in a city and emulating it in smaller towns to drive regeneration.
“I am looking forward to seeing Manchester become a great metropolitan area within the M62 ring road rather than just the Mancunian Way,” he said.
Leonard said residential in general had been viewed by investors as a “safe bet” during the pandemic but that finding the right portfolios at the right price has become increasingly difficult.
One of the factors that could further drive growth of PRS in the coming months is an uncertain job market, which could result in more people choosing to rent rather than buy, Leonard said.
While Manchester’s PRS market continues to thrive, buy-in from local authorities elsewhere in the country hasn’t been as easy to come by, she added.
“PRS is strong in Manchester but not so much elsewhere. Local authorities are still feeling their way. It is nowhere near quick enough.”
Hill agreed: “Manchester is a thriving centre but it almost feels like it has been switched off. But I am pleased to say we are now seeing a spike in activity.”
He said April had been JLL’s busiest month on record for enquires and lettings as people begin to migrate back to the city centre.
Hill added that, while rents within larger developments had dropped during the height of the pandemic, investor appetite remains strong.
“There is plenty of money around. Overseas investors are active.”
As time goes on, residents will become more discerning about choosing PRS properties, and accreditations such as Fitwell, which measures the wellbeing credentials of a building, and WiredScore, which rates how good a development’s internet connectivity is, will become more and more important to tenants, according to Hill.
“People want to know if a place is good for their mental health and that they can operate efficiently.”
Rowe joined Packaged Living from planning consultant Turley as a “lockdown recruit”, a move he said “reflects the health of the build-to-rent sector”.
“There is a myth that city living is obsolete,” he said. “[In recent weeks] we have seen Manchester throbbing with activity. People want to be in cities.”
The PRS product is likely to change in some ways after the pandemic, but Rowe said there is a danger of “throwing the baby out with the bath water” and over-rethinking design.
“We were doing it right anyway. We design buildings where we want our tenants to be happy.”
Away from the city centre, Packaged is looking to take advantage of a gap in the market in suburban areas.
“There is a demographic that has become used to renting and they have received a poor-quality product; there is a market to fill the gap,” Rowe said.
Panel two – Futureproofing PRS
Rachel Bruce, associate, CallisonRTKL
James Blakey, planning director, Moda Living
Dan Batterton, head of build-to-rent, Legal & General
Two CallisonRTKL-designed PRS projects in Ancoats and Greengate totalling 700 homes are due to complete in the next quarter. “It is great to be involved in a sector that is so alive in Manchester,” Bruce said.
She added that architectural firms would certainly need to adapt to the shifting needs of residents post-pandemic but conceded that what that would look like was still unknown.
“It could be that instead of a gym we have Peloton bikes that you can hire and have delivered to your apartment. We have to predict how lives will change. We are pivoting somewhere but we aren’t quite sure where that is yet.”
Blakey said Moda’s “long-term stewardship” approach improves the quality of its developments for residents, as does the embedded artificial intelligence system within its buildings, called Utopi.
“The buildings talk to us about the use of space and through AI we are able to reduce energy consumption by 20%. You can design around the data.”
The market is seeing “a great influx of new funding and investment” and that in-built sustainability is high on investors’ agendas, Blakey added.
“[It is] a challenge construction-wise but the appetite is there and that is huge. We have the ability as to make changes…and enrich lives.”
Blakey warned that the PRS sector is being held back somewhat by underfunded local authority planning systems, which are either too slow or don’t have a good enough understanding of the product.
“Please, please, please, invest in planning departments,” he pleaded.
Legal & General’s first PRS investment was English Cities Fund’s Slate Yard in Salford five years ago, Batterton said. Now, the fund manager has 6,000 homes in development and an additional 2,500 that have been delivered.
Talk of residents flocking out of city centres due to the pandemic are “complete rubbish”, according to Batterton, who argued that cities would in fact be more popular now as people have been starved of company.
“I don’t think cities are dead. People want to be around people more now than they did six months ago.”
When asked about whether L&G would look at repurposing existing buildings as well as new-build developments, Batterton said there are often too many compromises that have to be made to make the investment attractive and viable.
“We are five or six years into a new sector where there are a limited number of players. We don’t feel we need to compromise on location or build quality or ESG credentials. With repurposing you end up with inefficient schemes and strange apartments and that has put us off.”
However, if PRS and repurposing do collide it will most likely happen in Manchester, a city Batterton refers to as “the laboratory of build-to-rent” due to its broad range of schemes and prices points, and a wide demographic.
“We are still scratching at the surface of what build to rent is. We can watch how it evolves.”