Last week, Macfarlanes hosted a breakfast panel discussion on the year ahead for the purpose-built Private Rental Sector (PRS) market. The expert panel comprised George Cotterell (Director, Venn Partners), Richard Jackson (Managing Director and Co-Founder, Apache Capital Partners), Eleanor McMillan (Director, Residential Capital Markets, Savills), Ryan Prince (Principal, Realstar) and Matthew Pullen (Chief Operating Officer, Ecoworld International), moderated by Real Estate Partner, Clare Breeze.
The panel focused on three topics, (i) market reaction to PRS, (ii) construction challenges faced in the sector and (iii) "hot locations" for the 2020 pipeline.
While PRS is still regarded as a relatively new asset class by the public, it is well-recognised and quickly becoming more established in the eyes of investors, lenders and valuers. Tenant demand has been higher than expected with lease-up rates and rental premiums outperforming business plans.
A key difference for PRS is the focus on tenant experience, with high levels of amenities, service levels, flexibility and a focus on creating a culture to support a community. These differences drive a rental premium against the standard residential rental market where there can be a disconnect between the asset and the occupier. The market, whilst strong in London and key regional cities (such as Manchester, Birmingham, Leeds), is also growing in locations such as Belfast and Bedford.
It was generally agreed that one of the biggest challenges to the sector is increased competition as new investors look to invest in a maturing market, which may result in downward pressure on rents. However, it is expected there is still some way to go before demand is met.
The collapse of Carillion has impacted the development market with developers moving away from "Tier 1" contractors to "Tier 2 contractors" with a proven track record. There is a heavier focus on diligence of contractors and selecting the best team in the asset location in order to spread risk and ensure timely and quality delivery.
Design and planning requirements continue to develop, not least in respect of cladding issues, and local considerations such as a continued focus on affordable housing requirements from Local Authorities when making planning decisions.
Hot locations – looking ahead
PRS is expected to continue to develop across the country, with expansion to smaller cities such as Sheffield and Milton Keynes and we may see more suburban housing, with single family houses and low-rise flat schemes in less-central locations.
Currently the PRS customer base is dominated by millennials, but there is an increase in family lets, and some older renters who are downsizing. A focus on trying to attract a good mix of residents, not only supports local residents, but also helps create a community in which people want to live.
Management of the asset is key, with PRS stepping outside of the traditional asset-based property-investment, and crossing over to the management of an operating business with cashflow and operating expenses. Twinned with this is the rise of the PRS brand within the market and by consumers, of an association with quality and that all-important tenant experience.
PRS is fast becoming an established asset class that continues to grow across the UK, with a focus on tenant experience, on-site amenities and quality asset-management, and is helping to deliver homes to a mix of tenants throughout the UK. Opportunities remain for investment into this growing area with a variety of professional teams behind the development and management of these homes, but with some developers and investors remaining cautious around construction, operating and planning difficulties. Our panel agreed that high-quality management will be critical as more assets reach the market.