COMMENT The arrival of major employers like Channel 4 and HMRC, combined with high levels of foreign direct investment, has boosted Leeds and the wider Northern Powerhouse’s economy in recent years, creating jobs and opportunities while fuelling the demand for housing.
Last year saw the highest level of residential construction recorded in Leeds since Deloitte began tracking the city through its Crane Survey series in 2007. In 2021, 10 new residential schemes commenced construction, set to deliver 2,267 homes. That represents an increase of 210% compared with 2020.
Helping to meet demand is the private rented sector, making up around 20% of the residential stock. Build-to-rent is providing a critical supply of new homes.
BTR boom
Leeds’ BTR market has evolved significantly since the first development more than four years ago. The city now has five operational assets providing nearly 2,000 homes, from studios through to three-bedroom apartments. Despite the market’s maturity, research from the UK Apartment Association shows room for expansion, with the city’s BTR pipeline representing 12% of existing rental stock. This compares with 18% in Birmingham and close to 20% in Manchester.
Potential for BTR in Leeds is greater than just capacity for development, though. There is real confidence in its offer, with investors seeing it as an attractive proposition – backed up by developers creating quality residential and mixed-use schemes capable of generating institutional-grade returns.
Embracing BTR can also help fulfil Leeds’ future vision. Leeds City Council set out its five-year housing strategy in July 2022. The plan to “ensure the provision of high-quality affordable homes in thriving and inclusive communities” has three pillars: health and wellbeing, inclusive growth, and zero carbon. The BTR model is well-placed to help deliver these aims.
Take developer Platform_, which recently lodged a planning application for 1,350 BTR homes on a 1.3m sq ft site at Sweet Street, an ex-industrial area in Leeds’ South Bank. While subject to approval, the initial masterplan shows how BTR can be a catalyst for regeneration. It also demonstrates how BTR can support the transition to net zero, with Platform_ outlining an energy and sustainability strategy that will see it utilise renewable energy sources, in-home technologies, and energy efficient heating and lighting systems. This is alongside targeting BREEAM Excellent for the development’s office space.
There is also the community aspect of BTR. Through the provision of dedicated spaces, services and amenities, developers can create opportunities for residents to come together to socialise and share experiences – a powerful tool in supporting their health and wellbeing.
Ensuring affordability for residents will be a test. This is partly led by legislation, with no affordable requirement currently in place for multifamily BTR. While some may criticise the sector because of this, it is important to recognise BTR as part of the wider residential landscape, the success of which is reliant on providing a mixed housing tenure, including private sale, affordable housing and PRS assets like BTR.
The importance of mixed tenure is reflected in the council’s housing strategy, which highlights PRS as having a role to play, “contributing to the economy of the city, while providing homes for students, visiting professionals and those who choose to live in the sector”.
Battling uncertainty
Current economic and political turmoil present the BTR sector with challenges. Rising utility costs and interest rates are making funding and operating BTR more difficult. This is forcing some developers to re-evaluate their plans and hit pause while they assess and adapt to changing market conditions. There are also specific hurdles relating to the Leeds real estate market. These include availability of land and ability to unlock complex sites.
The UK’s BTR sector, however, remains resilient. Statistics from JLL show annual investment into UK living real estate exceeding £10bn in the third quarter of 2022, with the sector on track for a record year. BTR accounted for almost half of this investment, with £4.9bn deployed into the market during 2022. Investment into BTR in Q3 doubled year-on-year – reaffirming its appeal to investors, even during periods of major global volatility.
This growth is underpinned by a systemic undersupply of housing in the UK, especially in the rental sector, where more than 230,000 new homes are needed annually to avoid a shortfall.
Leeds is buoyed by its confidence and status as a ‘go-to location’ when it comes to BTR. This will enable it to make progress against meeting its housing needs, while accelerating regeneration and improving the quality of life for everyone that calls the city home.
Judy Fawcett is a real estate partner and build-to-rent specialist at Shoosmiths
