"That focus on brand, I think, is becoming even more important as people start recognizing the names of brands that they can trust." — Ashley Perry
Real estate affordability has been shrinking dramatically for first-time home buyers on a global scale, especially given the surge in popularity for single-family homes throughout the COVID-19 pandemic. However, this has created a huge opportunity for those looking to take a bet on built-to-rent apartments.
As demand for build-to-rent communities are projected to increase in the UK over the next few years, how can you build interest in your community and market to potential renters?
- Some of the key differences between the UK and Canadian rental market
- The different factors that are driving the BTR (Build-to-Rent) market in the UK
- Why the COVID-19 pandemic has heightened people's willingness to pay for premium services in the rental market
Mitch Fanning [0:00:52]:
Okay, welcome back to Sync or Swim. I'm Mitch Fanning with Rentsync, and joining me today is Ashley Perry, who is the Director of Build to Rent or BTR Consultancy at LIV Consult and advisory service for both the BTR and co-living communities in the UK. Ashley, how are you doing today?
Ashley Perry [0:00:55.8]:
Very well, and thank you for the invite
Mitch Fanning [0:00:58.4]:
Well, you're most welcome, so maybe you can start by expanding on that intro and telling us a little bit more about yourself, and maybe LIV, and how you got started in the industry.
Ashley Perry [0:01:10.7]:
Yeah, absolutely. So I'll start off with myself, as you've mentioned my name is Ashley Perry, I'm a Chartered Surveyor, and I've been involved in multifamily built to rent here in the UK and Europe for the past four or so years, specializing in previously in residential development, and particularly in London. Been in London for the last seven and a bit years, and I'm originally Canadian born in BC, so you may hear my accent, so goes between UK and Canadian, depending on who I'm talking to. In terms of our LIV Consulting, we're a specialist built to rent consultancy that works with investors, developers that are bringing forward products into the UK and European markets, and also local authorities, so those are the local councils that may be very forward built around communities for their own income generation and development, and then our focus of our team has sort of really ramped up, and I joined LIV Consult at a relatively startup position, LIV Consultants, six people now, and I joined... I was the fourth person through the door, we have been with the team since 2017, in 2017, and we've been operating independently, as is a consultancy across the UK, Ireland, and Spain for those past four or five years now. Interestingly enough, our wider business LIV Group is a third party Operational Manager, predominantly in the UK for major institutional investors on Purpose Built Communities. And our parent company, LIV Consult and LIV Group were acquired by a company called Cortland, has a US multifamily, safe to say the solid family giant that is growing in the UK and Europe. So things have really blossomed as the sector has evolved in the UK and Europe as well, so very excited to be part of the growth of the multifamily story here in Europe.
Mitch Fanning [0:03:16.7]:
Perfect, thank you for that. And so maybe just an obvious place to start from there would be to kind of highlight some of the key differences between the UK and North America when it comes to the rental markets, and maybe specifically Canada versus the UK.
Ashley Perry [0:03:35.2]:
Yeah, I think generally, there are some similarities, but I would suggest that within the UK growth of build-to-rent and very much grew out of the course of last seven or eight years in predominantly very urban areas, so you're in a transport node, it's built around predominantly started in London, then grew into other regions, Manchester, Liverpool, Birmingham, now north of the border, the Scottish border in Glasgow and Edinburgh with major communities under development and some of which are in operation across the UK. I mean, it's a very small fraction, purpose-built rental community, a very small fraction of the wider private rented market in the UK, so there are some similarities that I say there is an identified need in these urban areas, for example, I grew up in predominantly in BC, what I see in Vancouver and what's happening is that restrictive development nature of what's happening to multifamily is very similar to areas and pockets of constrained development, that I see in London where there might be a particular area which is a kind of jurisdiction area within there, there might be some risk of lots of rental growth, there's hotspots or built up and pent up in those areas, so there are some real similarities, but I would say we're really on that first...We're on the journey towards really if you look at it and take any city, in most cases around the UK, you might have a handful of operating open and operating purpose-built rental communities, and you're only now seeing people move from the BTR 1 out of BTR 2.0 that might have the better immunities or the better quality experience, so I would say that here we are very, very much on that, let's say toddler who's learned how to walk stage of development, were as in, say, Canada, you've got some established walkup blocks, which might not be purpose-built that had as well as the high immunities blocks in a lot of the major cities. I would say that there's very subtle nuances between those markets, but really urban markets that are driving that pent up demand and institutional supporting narrative for investment is very similar across both.
Mitch Fanning [0:05:55.1]:
Now, that's the second time you've mentioned, or you've described the UK market as a toddler, 'cause you did this on the prep call, and so I guess what's my next question or if we can kinda unpack that, what's driving that growth or that interest in BTR, is it the normal things like there's people moving in there, there's investment coming in, is it kind of the normal things that you would anticipate or look to, or is it something different than that?
Ashley Perry [0:06:31.4]:
Well, I think what's driving it, and my reference there to a toddler learning to walk, I should caveat that, that's not really my phrase, I've seen it, I've seen it used, when we all did get together for conferences at the great UK BTR attending one was somebody coined that probably 18 plus months ago, so perhaps that toddler is slightly older now, and I would actually say, just to give real credit to some of the market conditions, if I take the snapshot of the eye of the storm as 2020, just to give you a kind of case study, our role is kind of an independent consultancy spans work, we do with on the operation of our Cortland and colleagues who we do a lot of great deal of internal work for, but also I have very strong links to some of the operators who shall remain nameless for the purpose of this call, but the interesting thing is, in that 20-20, there's a real pressure around... There are some very challenging marketing conditions where there was a great deal of supply that came out of the ground in 2017, that ended up being completed end of 2019, early 2020, that could not possibly have landed and be open and operating in a worst time. And the response to that has been very rental incentives, etcetera. It's all that actual urban growth was... Has been subdued, the urban growth in place is like Birmingham where the demand has been sustained and actually, I hesitate to obviously giving statistics that are for... Are giving too much of a case study, but a well, in excessive release up anticipated by some of those major operations of 3-400, 500-600 unit developments, that pent up demand for people that wanted a managed service, which hasn't existed in some of these locations before. So it may not be the heavily immunities, may not be particularly of Five Star luxurious departments, these are just really positive experiences for the residents is something that's quite new, and I think that the pandemic is gonna put pressure on people to see that they want something different from their apartment, if they rent an apartment from a hole sort, non-institutional landlord, they might have a bad experience in the rest of the building, they might not have their parcels managed, etcetera. We're at the cusp of that being recognized in the mainstream press, there's been a lot of coverage of this, but I would say genuinely, it's that we're moving into an awareness stages, all of the industry is focused on delivery of the product and the experience, and talking to all the good stuff that we'll talk about, it's actually really in the last two and a half years, but particularly, I would say focused in the last 18 months to a year where the pandemic has bought this really into focus, so it's quite an exciting unintended consequence that people are now giving customer reviews that are seeing the praises of the management teams and the experience that's being offered to them, to individual residents, and it's quite heartwarming it's not without some of the challenges, there's definitely...It's not wholesale brilliance across the sector, but it's the overwhelming majority of that is being extremely well-received by the customers who ultimately are even more just turning and they probably were prior to the pandemic.
Mitch Fanning [0:09:48.9]:
Yeah, it's interesting, and you use the word managed services, and I'm just gonna go on a... Maybe I'll script for a moment. I often find that as the subscriber economy kicks into another level with everyone obviously having subscriptions for different services, and you look at a community, you can almost look at it the same way, is that people are willing to pay a subscription, or in this case, rent for a good experience or something that is, like you called it, managed and has all the amenities that they're looking for, so I think in a way with younger people, but also people that are getting older and just professionals, that's something as they look at other subscriptions and they almost start to look at it, maybe rent that way, I'm not sure if that's the case, but I'm just kind of seeing that trend and I'm hearing that more and more.
Ashley Perry [0:10:55.5]:
I think that resonates. I think the impending challenge around affordability in an economy that will take time to come out of this situation clearly hasn't affected the target demographic and the experienced actual demographic in these built to rent communities, generally white color professionals as the majority of the residents, about slightly above average income. I think that that subscription economy point does resonate for sure. I think the one... And there are platforms now that have launched that have talked about membership to the community, and I think that that sort of envisioned reality of a community in the building versus the reality of the community has been really tested in the last 12 months or so, where... The glossy brochure of the website might position a position, this community to have all of the bells and whistles, the community aspect of reviews might say great things, but some of that hasn't obviously been able to be opened in the current climate, and people have been noticing that and then kind of questioning, or why am I paying a 1015% premium on the open market for those services? So I do think there'll be any time people view who or make assessments of a market or the conditions in the midst of, let's say the eye of the storm, it's almost like, where is the next...What is the outcome of unlocking getting back to normal? Obviously, things are slightly different in the UK right now versus other places, clearly, I feel that we'll get back to some level of normality very shortly. It's interesting, I actually presented to a Canadian investor that's heavily invested in the UK, built to rent back in May last year, and I went back to those comments I left in the kind of conclusion and that this is a very prominent investor, and I say customers will remember how you treat them in the period right now, and that has become true and also that focus on brand, I think is becoming even more important as people start recognizing the names of the brand that they can trust, and I think that that comes back to the subscription economy, like you said, your Amazon Prime, your Netflix, or whatever the built around operator is, and there's an... It's someone's most significant outgoing expenses every month, people expect a certain degree of high-quality experience often back in that.
Mitch Fanning [0:13:21.6]:
There's no question. Now, obviously, you've mentioned COVID a couple of times and not... During these conversations is hard not to... Of course, obviously, COVID has affected a lot of businesses and people, including I'm sure the UK, rental market, that being said. Have there been any positives that you can speak of, or set another way, have there been any beneficial changes which maybe you kinda had to pivot into during this time, but maybe you'll continue with in the future.
Ashley Perry [0:13:56.1]:
It's really interesting actually, isn't it? That some of the market conditions that have been well-publicized when you delve deeply into the call it say London first and then kind of move out from there, the donut effect, so very central locations and wanna two in terms of the London Underground tube map definitely, I've seen and continue to experience relatively depressed demand, which is driven, rents down the focus, and if you take this on a Zoom out some of the commute abelt, which people aren't obviously doing the community, but some of those places that we're 45-50 minutes away from or central business nodes, the city Canary Wharf, West End, and Mayfair and of those kind of areas, and even North under which has a high degree of Office occupation as well, those areas have definitely seen a reprioritization of requests from residents. So what does a resident... One, there's been a huge uptick in people wanting access to garden space for obvious reasons, 'cause that was always available to people to enjoy, so I would say that there's been from a development level, even more so, whether it's sort of planning, policy mandated focus on balconies external space, etcetera. It's definitely higher on the rarity list of development briefings that I'm involved in with our team and our kind of wider industry peers. I get to the point that an example would be a commuter belt scheme that I was looking at with an institutional investor in the last three or four months, the specific question around, do we have enough balconies? And it was not a deal-breaker that there weren't that many balconies as a proportion of the scheme is about 50%, but it was a... We're asking that question, does this suit will arc future customers to one and have those preferences massively changed? I would also say there's a sub-sector, no one's kind of coined the phrase, other than a couple of institutional investors called SBTR, which would be Suburban BTR. We've been working in this space for probably three and a half years with a number of different house builders and Masterplan developers that deliver the communities in the suburbs around the UK and Ireland as well, where there's now a concerted and continued investor interest. I can highlight one major deal in this space where Golden Sacks acquired a portfolio of over 800 single-family apartment homes with no amenities, these are relatively simple communities in a sense that they're fully stabilized, the income was proven, the model was proven. A lot of the horse may have faulted on that before, but I would say, I mean that transaction ended it being complete at the end of December, but certainly that business model has been proven over the course of the last 18 months in particular, but also the rental market conditions, the growth of 5%, 67% growth in some of these suburban locations has been driven by perhaps are not necessarily focusing on what's my commute gonna be like, Well, what's my lifestyle going to be like? And I think that some of that continued institutional investment into suburban build rent, ideally in purpose-built communities will probably consistently continue to thrive in the post-covid situation, and I think that as a proportion of the rental market, SBTR... Suburban BTR is definitely a less than a tenth of the fraction of the build to rent market in urban centers, so it's got a long way to grow and grow as it were. So we're looking forward to being part of that to be honest.
Mitch Fanning: [0:17:29.5]:
Interesting, that's the first time I've heard of that term, and I just spoke with... We had a panel discussion last week and how transportation used to be at the top and as far as location, and it actually moved down... It's still important, it's still number two, but it's kind of switched spots with, I believe it was groceries, but it's kind of, again, a sign of the changing of the times again, will that slingshot back up at the beginning, at the top share maybe it will but it's just interesting how trends are kind of in flux right now as far as what people are looking for when they're looking for a new place to rent, so as we kind of come to a close here in the conversation, I guess, before we kind of get into a bit of a quickfire round, what in your mind, if you look three to five, maybe 10 years out, what does the future of the build to rent market in the UK look like?
Ashley Perry [0:18:29.6]:
I think we will see... Start seeing continued trading of some of the built and operating assets, we're getting there, so where people have built and stabilized schemes and there's rent proven and operating cost proven, and I think that weight of institutional capital is getting there and there's more... More people looking at that yields might compress even further in these urban census, your Manchester, Birmingham, Great London, and also the secondary locations. I think that probably the one other thing that I would continue to say is a lot of the secondary locations, having one or two or three communities in a town of maybe 100,000 people, 50-60K, 100,000 people that have a smaller market, but people are seeing that as an opportunity to establish themselves. So I think that will probably be a headline, there'll be a lot of smaller, less recognizable locations on the radar, 'cause we've already seen that occur, particularly post-pandemic as people look further out of Central London. So yeah, and I think that that STBR model is probably going to consistently grow over the course of the next three to five years, we've seen that in Dublin as well as in the last couple of months that have shown up. If we think about the model that a group may have, again, you develop, stabilize and then consolidate, I could see some sort of large ticket trades happening certainly before that five year horizon.
Mitch Fanning [0:20:00.0]:
So now we move into the quick-fire round where I'll say a statement and you've got 30 to 60 seconds to respond, so Ashley, are you ready?
Ashley Perry [0:20:09.7]:
Let's do it.
Mitch Fanning [0:20:10.5]:
Okay, so who from the UK should I have on this podcast?
Ashley Perry [0:20:15.8]:
You should have my friend Adina David of Greystar, a number of different people across both Greystar and Glider the Urban Land Institute, your strategy around co-living and what it means to our communities in cities, so I think she'd be a great next guest on the pod.
Mitch Fanning [0:21:00]:
Okay, perfect. I'll put that in the show notes to reach out. What have you changed your mind about lately as a result of COVID?
Ashley Perry [0:21:16]:
I think more a continued priority of that, as you said, that walkable neighborhood, and I always ask the question and we continue to bring it up at very early stage design team meetings, and in terms of what's the actual neighborhood like and where can I go on a Sunday morning to get to the paper and get some milk if I've run out? And if that isn't clear and imagining myself as a resident of this future community isn't clear, then it... It needs to be focused on as the investors change those priorities in response to the residency requirements, so I think that kinda continued theme of neighborhood raising it, rising up the priority list rather than proximity to other things, I think that that's just, that's number one on the top of my list at the moment.
Mitch Fanning [0:21:29.4]:
Okay, last question is what's the most misunderstood thing about the UK market?
Ashley Perry [0:21:34.3]:
I think the quantum of high-quality residents and appropriate affordability in secondary locations and pushing that a little bit too far in some instances, I definitely can see some challenges on the horizon on that front, so perhaps not quite aligning your core target audience to what is your actual local resident demand because generally, people grow up and move in the UK quite locally, and so two-three mile radius and actually really a detailed understanding of that is sometimes possibly overlooked in the process of developing purpose-built communities, 'cause I've seen that in relatively so lease-up rates for some communities in the market, and that's generally... That mismatch has been expectation and reality, so I think that there's definitely been some learnings off the back of being in the cold face of renting those communities.
Mitch Fanning [0:22:33.2]:
And finally... Where can people find you? And a little bit more about LIV Consult on the interweb.
Ashley Perry [0:22:35.0]:
That's a good question. We're working on the website, but you can find me on LinkedIn, just Ashley Perry, you can find me on Twitter, mostly pictures of my dogs or my daughters or indeed a little bit of real estate in there, so I'm @ashleyperryuk on Twitter and... Yeah, I'm very happy to chat to anybody that's interested in the UK and European BTR markets, so would welcome, any conversation.
Mitch Fanning [0:23:02]:
Perfect, well, that's it for this episode. Ashley, thanks so much for doing this, I guess. Until next time, keep swimming.