Allsop’s Senior Research Analyst, Emma Hart, shares her insights on the importance of good market intelligence and how to assess the viability of build to rent products.
Location, location, location has long been the mantra for property investment and development. However, when assessing the feasibility of a build to rent scheme, it’s research, research, research that matters.
Why is research so important for build to rent?
Build to rent schemes are unique. As long-term commercial grade investments, with long-term residential rental occupation in mind, a more comprehensive analysis of the market is required. In order for a build to rent scheme to be successful, market research must inform three essential principles. Firstly, what to build; including product design and the amenities that should be provided. Secondly, value and return; here research must determine rental income and the best management strategy. Finally, the proposition for investment; an understanding of how the market will respond and the likely investor profile.
What do you mean by research?
Research is about collecting the evidence that will support a viable build to rent investment case. While it remains imperative to have knowledge of local property values and the sales and lettings market, build to rent research also encompasses many different elements. This can include location analysis, data on population, earnings, employment statistics, affordability and potential customer profiling. The findings of this market intelligence should be used to dictate what the final product looks like, from the quality of interiors, to the apartment mix and communal spaces, ultimately driving value.
How do you approach market intelligence?
The key to market intelligence is to ask the right questions and know when the right answer presents itself. It is one thing finding the data and information, but another to analyse these findings in the context of the location, scheme and demographic. How does everything fit together to prepare an interesting and believable build to rent investment case?
Ask the right questions and know when the right answer presents itself
Are all build to rent schemes the same?
There is no directly transferable blueprint for build to rent, as the viability of a scheme is linked to the nuances of the micro-market. Of course, there are built to rent fundamentals, but the product can vary so much in relation to the market that it isn’t a case of one size fits all.
Who are the customers?
Identifying what price prospective customers may be prepared to pay for a build to rent apartment is merely a starting point. It is useful to question: Who are they? Where do they come from? How old are they? Where do they work? What do they earn? What product should be developed in order to appeal to them?
What does the local market need?
It is important to consider why people want to live in the local area. Does it have a good reputation? Is it safe? What are the transport links like? What is the average cost of accommodation? What amenities already exist? What do other build to rent schemes in the area look like and offer? What local authority proposals are planned for improved infrastructure, new schools or shopping areas? Every location is different and all these factors can provide a useful indication of what the local market expects or needs.
A luxury or affordable product?
Affordability should not be overlooked. In a bid to be able to command the highest rents possible, we often see high-end build to rent schemes planned for areas where there are many other ‘luxury’ developments already targeting this sector of the market. While there may still be appetite for top-end products in the Capital or Manchester’s thriving economies, this is not limitless and not all markets can sustain high-end expensive rental products if local wages have become strained. We always recommend researching the strength of the local economy and the capacity for residents to earn more to underpin where a development will sit best in the market to be successful. Certain areas will be better suited to a more affordable scheme, but this doesn’t have to be at the detriment to design quality or customer service.
Is there an investment case?
Market intelligence is not about selling the benefits of build to rent, but much more about appreciating whether the narrative surrounding a potential development is weak, mediocre or strong. The strength of the vision is paramount to the key investment characteristics of a scheme.Build to rent investors do not make purchase decisions on a whim – the major players in the industry approach investment decisions with logic, reasoning, high levels of due diligence and a thorough assessment of market intelligence. To extract the most out of an opportunity, the research, or market intelligence, needs to be accurate, diligent, realistic, thorough and comprehensive. There is no shortcut to good market intelligence.
