Pushing the boundaries of build to rent and integrated living
Build to rent (BTR) is a relatively new sector in the UK housing market; it fills a gap for quality rental housing and provides not just a place to live but a community. Residents can benefit from the use of communal areas and shared facilities in a purpose built, well designed development in locations that would otherwise be unaffordable.
As a result, the BTR market has shown itself to be a defensive and robust asset class, offering investors a long term, stable income.
BTR's resilience is particularly evident in the new covid-world we live in; whilst people can forgo shopping sprees and switch the office for their living room, there is no substitute for a roof over ones head and rent is the first expense to be paid. With the commercial, retail and hospitality sectors currently stalling, investors can turn to BTR as a safe investment and take the chance to bid for prime real estate that might not otherwise be viable.
A key selling point of BTR is the communal spaces it offers occupants; spaces such as roof-terraces, gardens, gyms and offices. This makes BTR a top candidate for "co-locating" or "integrated living" whereby two or more sectors are combined into one development to share facilities. BTR should therefore be a catalyst to drive and unlock mixed use development in its truest sense and there is a huge opportunity for investors to capitalise on this.
BTR has already dipped its toe into integrated living with student accommodation and senior living, both suitable matches given the similarity in uses and the facilities offered. The question now is whether, and how far, this integration can be pushed. There certainly seems to be an appetite in the sector to consider the possibility of integrating BTR with less obvious uses, such as retail, infrastructure, industrial and logistics.
What are the benefits and challenges of BTR and integrated living?
The next generation of BTR could provide numerous benefits to both investors and residents. By co-locating, each asset class would offer something different to complement or enhance the BTR scheme and we have explored just some of those benefits below.
- Retail – with retail and shopping centres usually located within city centres, integrating with this asset class would offer residents the chance to live in central locations that would otherwise be unaffordable.
- Infrastructure – over station development is a potential solution to the rising demand in land for housing and has already been identified as an alternative development site. By integrating BTR with travel infrastructure, this would allow residents who might not have access to a car, to have immediate access to public transport links. There are already examples of this type of integration, such as the proposed development above Nine Elms Underground Station by Connected Living London.
- Hospitality – one of the key attractions of BTR is the provision to its residents of a variety of amenities. Given the hospitality sector offers a similar premium range of facilities, it is clear to see how combining these two sectors could work well.
- Industrial/Logistics – as these sectors go from strength to strength and logistic companies are snapping up prime real estate, BTR developers could take advantage of this and utilise otherwise unused space. We have seen this already at St Pancras Station with student accommodation above a Travis Perkins store and delivery centre.
However, for all the benefits, pushing the concept of integrated living in this way does present a number of challenges. For a start, obtaining planning permission for two quite distinct uses would be complex. Zoning and building approvals are a lot harder to obtain and from a design perspective, there are a lot more details you need to get right.
There is a potential drawback for investors who prefer to have complete control of an asset, if each asset class is to have separate owners. Depending on the structure of leases, the result could be less control of the cost in use of the asset than when it is in single ownership. This won't be an issue for investors who are able to hold multiple asset classes within the same fund and therefore maintain single ownership.
There are also operational challenges once the development is complete, for example how to apportion service charges and manage the day-to-day running of the buildings. Practicality is also a factor – realistically can warehouses and logistic facilities operate effectively without disturbing their residential neighbours? Similarly, as the majority of shopping centres are built on privately owned land and without any public realms, this makes designing new communities so that its residents can gain access a potential problem.
For all the challenges, this does not mean that the task is impossible; there are always ways to overcome these hurdles, be it through better technology to streamline management and operational systems or through more creative designs to deliver seamless integration across a development.
What is clear is that people's priorities and needs are changing and developers are now exploring co-locating as a way to deliver those needs. At its core, BTR is a lifestyle choice, offering residents the opportunity to live in diverse and intergenerational communities and who can benefit from a range of high quality facilities. Co-locating with more diverse sectors is a chance not only to develop more BTR schemes but also an opportunity to expand and enhance the facilities and benefits that can be offered.