This article was published by UK Build to Rent, as part of their Q&A series with industry leaders. They asked Sarah Tonkinson, Foxtons Managing Director of Institutional PRS and Build to Rent, a few questions on the market for Build to Rent in London.
Q: How have you noticed a change over the last 5 years of renters in the market, particularly their understanding of the concept of Build to Rent (BtR) and what it offers?
ST: Five years ago, BTR was in its infancy. People from overseas understood it, but many people from the UK did not.
The past two years have had a monumental impact on BTR by illustrating the benefits of community during lockdowns. Residents appreciated operators checking up on their mental health and providing events like cook-alongs.
Recently, there’s been an uptick in people choosing to rent instead of buying. Traditionally, Londoners rented until they could buy, but renting is becoming an appealing long-term choice.
There are benefits in BTR that homeownership does not provide for “Generation Rent” – quality accommodation that caters to a resident’s needs 24/7. There is still work to do on educating potential residents.
As part of their viewing journey, we find that when we show an applicant a BTR development once, when they move on from said development, they will want to rent within another BTR community.
Q: How could the Build to Rent philosophy be better communicated to tenants from the day they start their renting journey/search?
ST: It starts with the sector defining what it means to live in Build to Rent, and they’re getting better at it. Agents have a part to play as well, we work with the on-site teams and educate our renters.
We educate internally too, and our applicants respond in turn to our negotiators’ enthusiasm. In 2021, 27% of Foxtons BTR units were let within a week of listing. But overall, it’s about getting the messaging around the benefits consistent across the sector.
There are great private rental sector landlords, with timely repairs and delighted tenants, so BTR can’t just say, “Oh, we care more about the residents.” They have to prove it through service.
Rent in BTR can be more than 20% higher than local market rent, but residents factor in the amenities – rooftop gardens, co-working space, 24-hour concierge – all of those things that provide a sense of community. According to research, community is a key driver for residents, so it’s vital to get that message out there.
We also need to get the language right and draw a line between private rentals and BtR. For example, “tenant” should really be changed to words like “resident.” I think in order to change the philosophy, the language has to consistently change.
Q: With the world and its technology ever evolving, what do you see as the fundamental trends that will emerge around rental tenants demands over the coming 5 years.
ST: I feel quite strongly that technology is important in the resident journey, but also that the human aspect plays a massive role. Residents want virtual viewings and for the concierge to greet them by name. They want a personalised 24-hour service, which requires both people and technology working seamlessly together.
Internet connectivity is huge, partially because COVID bought hybrid working to the forefront. Wi-Fi needs to follow residents around the building and into co-working and communal areas, not just their apartments. It is becoming as important to residents as water, gas and electricity.
The focus on technology is already here. Applicants can see what the residents think about living in a building on HomeViews, which also puts a focus on ESG factors. They see how the building saves water and electricity, interacts with the local community and local school…
So things like integration into the community and eco-friendly design become important. Developers are working hard on what they can do about carbon footprints and solar panels.
Q: With regards to oversupply, where are the areas of the market that are tapped out of the need for rental developments?
ST: There isn’t an oversupply anywhere in London. We’ve proved, over the last six to nine months, that we need more quality housing stock. Last year, we’ve registered just under 400,000 applicants at Foxtons, and currently, we have 19 applicants per listing. London is in a housing crisis, and BTR can help fill that supply.
Q: What areas do you feel are largely undersupplied with quality rental developments and could use Build to Rent investor attention?
ST: We do a lot of consultancy, and at the moment, the hot topic is who will live along the Elizabeth Line. Those areas are undersupplied but have good transport links. Our negotiators easily market a BtR development’s transport links because connectivity matters to residents.
South of the river (e.g. Putney, Clapham and Wandsworth) there is a massive undersupply. According to Foxtons Business Analytics, rental demand for the south region is 48% higher in Q1 2022 than it was in Q1 2021. There are developments on the way, but there isn’t necessarily the land to build at scale.
Similarly, there’s high demand and more developments coming to Zone 1. But again, London is a three-story city, and BtR is typically a 30-50-storey offering. So, planning restrictions impede BtR in areas that need the supply the most.
Developers are thinking further out. Abbey Wood and Southall, which are on opposite sides of the Elizabeth line, have got the land to build BtR, but the key is getting residents out to those areas. Fantastic transport links enable residents who started looking in Zones 1-3 and are starting to explore Zones 4-6 because they see they can get into central London within about half an hour.
The interest is there; Londoners are mobile. In our London Report, we found 41% of tenants moved more than 5 miles to their new rental in 2021.
Foxtons are adept at helping Londoners move, because our network of offices across London are interconnected by our exclusive technology, and our people are trained to help renters expand their searches to get the rental experience they’re looking for.
Q: If you were employed as Head of Marketing for a Build to Rent operator and had a near-unlimited budget, how would you market it to renters in 2022?
ST: Honestly, I would spend a large proportion of my marketing budget on instructing an agent to attract the right residents.
Foxtons have been at this for 40 years – marketing property is what we do – so we know what works, what renters want, what they’re willing to pay and most importantly, we already have a ready-made audience.
Like I said, Foxtons tech and network enable us to move people around the Capitol. 36% of our renters end up renting in an area they hadn’t started their search in, so we’re well-versed in getting renters to where BTR exists.
Also, circling back to my earlier point on consistent messaging, if I had an unlimited budget to reach London’s 9 million residents, I would work on educating the wider market on the BTR lifestyle benefits.
Q: Are there any final thoughts on the direction of the rental market within this sector you’d like to share?
ST: We are in a brilliant market. We’ve seen rental prices grow exponentially over the over the last nine months. There is huge demand in the Capital. London is a global city, and as we said in our recent London Report, London is a resilient city.
Despite all the obvious global challenges of the last two years, competition for properties has pushed average rental prices right up all across London. People want to be here. So we have got to build as much good quality housing for them as possible.
