Crumbling foundations: UK build-to-rent sector sees dramatic COVID-19 decline

August 31, 2020

2 min read

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What's going on here?

According to the British Property Federation, the number of new residential construction projects (or “housing starts”) for build-to-rent has declined “by almost 60% in the second quarter of the year.”

What does this mean?

Build-to-rent construction is a type of property development. Instead of the traditional mode of leasehold with individual landlords investing in property for rental, this type of development goes beyond providing a roof over one’s head by also focusing on the provision of services for renters. For example, communal resident lounges, fitness centres and allocated work-zones, suggestively presenting the commodification of the leasehold.

Prior to COVID-19, there was strong statistical data available indicating that the housing and construction market was experiencing significant growth. Unfortunately, within the current landscape, housing starts for these residential projects have nosedived by “57%, from 4,297 to 1,827 in the second quarter.” With housing completions for projects with private rental prospects also having “dropped just over half” during this period. Whilst it is clear that COVID-19 is the cause of decline in the build-to-rent sector, this raises the important question as to whether, and how this market will recover in a post-COVID landscape?

What's the big picture effect?

Somewhat surprisingly, experts in the construction and housing domain remain positive about the prospects of build-to-rent in the post-COVID landscape. The director at Savills residential research Jacqui Daly, predicts “a convincing rebound” in the upcoming quarters of 2020. Such assertions are premised upon the realities that first-time buyers will be delaying purchases until stability is achieved in one’s earnings following the end of furlough schemes and in accordance with the new conditions attached to mortgages provided by banks. 

Despite industry positivity about the future, rental providers must be prepared to adapt to the COVID-impacted market. As noted by a team from Squire Patton Boggs, adaptation to consumer priorities will be highly influential in the future of this market. For example, as working from home continues to be viable, tenants are more likely to desire outside living space and property features which make working from home more pleasant will be of increased desirability. Furthermore, another issue of concern for both landlords and prospective renters is rental pricing. The lower the rent, the greater this will impede profitability for build-to-rent developers. Equally however, if rental demands remain too high then this also risks loss of rental prospects. Due to the current economic and employment uncertainty experienced across the workforce, it is arguably more important to ensure that built-to-rent developments remain affordable amidst this pandemic.

In summary, although the build-to-rent market is currently experiencing a contraction, both experts and statistical evidence suggests that this is likely to be temporary and that there are strong prospects for growth in this sector in the future. Nevertheless, to prevent further decline, the market needs to be prepared to adapt to the needs and demands of prospective renters.

Report written by Karolina Smolicz

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