COMMENT The build-to-rent sector in Scotland has had a breakthrough in the past couple of years, with almost 10,000 BTR homes now in the pipeline. In addition to offering tenants rental stability, BTR is increasingly becoming a way of life, adopting the notion of co-living and, crucially, embracing sustainability, prompting developers and investors to design schemes with environmental and social priorities embedded from the start.
The shift to what looks like a default hybrid working culture has highlighted the need for both strong digital and social connectivity within the home. A BTR development that offers professionally managed facilities, communal areas and high-speed broadband is an attractive option for professionals who would otherwise be working from their bedrooms. However, BTR can be so much more than that, with the desire to live in a community and have a network close to home not being just the preserve of graduates, young professionals, students and key workers. Families are also becoming a key focus for BTR so, as well as schemes targeted at the younger demographic, such as Watkin Jones’ proposed Portcullis House in Glasgow, there are other schemes whose principal focus is the family market, such as Sigma’s Bertha Park development in Perth.
Bearing the flag
What’s more, there is opportunity for the BTR sector to be seen as a flag bearer for sustainability. No longer should affordable “smart eco-homes” in the rental mid-market be wishful thinking. The push for net zero can be a driver in performance for the BTR sector, distinguishing itself from the rest of the UK’s housing stock. A carefully designed BTR scheme that offers tenants the chance to live a green, sustainable way of life without personally having to provide the upfront cost of things such as air-source heat pumps, further insulation and electric boilers can be a real differentiator for the sector. And the more sustainable and future-proofed a development is, the more attractive an asset it is for investors.
With a recent survey showing that 53% of tenants would be willing to pay more for a greener home – the “green premium” – it is not a completely left-field assumption that future generations will actively choose rental properties that can slot into their environmentally conscious lifestyles. Furthermore, both homeowners and renters have become increasingly attuned to the long-term positive financial implications of sustainable homes.
Staying ahead of the curve
Many developers are ahead of the curve here, with Watkin Jones having committed to ensuring that all of its properties will have heat pumps by 2023, and Holmes Miller and Kelvin Properties proposing a new “ultra-low-carbon” development in Finnieston, which will boast 125% cycle capacity, electric vehicle charging points, air-source heat pumps and high levels of insulation.
There is also Nevis Properties’ proposal for 131 Minerva Street, also in Finnieston, which has a low-carbon focus and an emphasis on energy-efficient materials and green technologies. The wider living sector is having to reconcile itself with its significant contribution to climate change (a recent Department for Business, Energy & Industrial Strategy report showed that the sector was responsible for 20.8% of CO2 emissions) and the changing attitude of tenants is raising the volume. The BTR sector can ride this wave and position itself as part of the solution, benefiting investors, developers and tenants.
While BTR does not offer investors the traditional develop-to-sell profit yield, it does offer a steady, more secure flow of income, assisted no doubt by the chronic housing shortage in the UK. Tenant demand has remained strong throughout the economic downturn and the sector looks ripe for further expansion in Scotland.
Opportunities abound
That said, it would be wrong to say that challenges don’t exist and, while the push for net-zero housing from investors is overwhelmingly positive, it can lead to difficulties with profit margins, especially from the perspective of the developers required to deliver such schemes. Another issue is that a large chunk (around 25%) of the rental income will be subsumed by the management fee associated with BTR developments. However, as the sector continues to grow (predicted to be worth £75bn by 2025) and more schemes of increasing scale and ambition crop up, this is likely to reduce, drawing more investors to the sector.
We should also recognise that we are in the embryonic stages of the sector’s emergence, with the majority of BTR schemes in the country still in the planning and construction phase. With us all having experienced so much societal and behavioural change over the past 18 months, the sector is – arguably more so than other living sectors – still nimble enough to accommodate these changes, affording asset owners the ability to incorporate net-zero standards and technologies into their builds from the outset. Coupled with the opportunity to target the family market and expand its reach into suburban and semi-rural locations, the future looks bright for BTR.
Janette Speed is partner and head of Scotland at Shoosmiths
