Built-to-Rent (BTR) in the UK: Data and Metrics to Deliver ROI
Data is everything in business. Without it, you cannot fully understand how well you are performing and what you can do to improve.
In today’s post, we will take a close look at build to rent (BTR) data and how you can use it to increase your return on investment in this growing space.
Why Focus on Build to Rent?
Savills reported in January that despite the challenges of the Covid-19 pandemic, the suburban BTR market continues to thrive. Savills estimates that there are approximately 2.3 million privately renting households living in suburban locations in the UK, fewer than 1% of which are provided by institutional landlords. The company goes on to say that if suburban BTR grew its share to 35% of this market (805,000 households) it could be worth around £230 billion to investors.
Why is BTR growing so rapidly? ABC Finance reported that around a third of millennials (those aged approximately 25 to 40 at time of writing) would never be able to own a home. This has led to this section of the population being dubbed “generation rent.”
The last five years has seen a substantial increase in renters over the age of 35, for a variety of reasons. The reality is that given property prices, stagnating wages, and an average first-time buyer deposit of £57,278 as of 2020, property ownership is an impossibility for more and more young people.
However, more people are also now renting long term as a matter of choice. Attitudes toward renting have changed in recent years, with many people saying they enjoy the flexibility, freedom, and greater choice of living locations that renting affords. With more people working from home than ever before, access to home working facilities (such as office space) and green spaces has seen an increase in demand, while demand for proximity to city centers and commuter transport has decreased. Changing jobs every few years is also now considered very normal, meaning that fewer workers want the location ties that come with owning a property.
Young people are looking for community and convenience, with BTR offering greater opportunities for both thanks to proximity to peers and access to impressive amenities in BTR developments.
What Does This Mean for Real Estate Investors?
All of this points to one thing: For real estate investors, BTR is the hottest segment of the market right now.
Most BTR developers and investors are not new to real estate, but BTR requires a somewhat different approach. Fortunately, the UK market has the great advantage of being able to leverage the many lessons learned from years of U.S. multifamily development experience.
In our recent webinar with Global Apartment Advisors (GAA), a third-party asset management firm in London that specializes in the rental housing market, CEO David Woodward explained that the rise in “some version of the U.S. multifamily model” was apparent in the UK and other international markets a number of years ago. Not all the knowledge translates directly, he added, but much of it does.
Here at REdirect, we have been working in multifamily real estate in the United States for over 20 years. This has given us unrivaled insight into the specific needs of this segment of the market and made us uniquely positioned to support investors and operators moving into the BTR space in the UK.
BTR managers do not need to “reinvent the wheel” when it comes to metrics, reports, and data collection—we know what you need and the tools that will fit your business.
Institutional Reporting in the UK Market
David says that the market is still in the early days of figuring out exactly what institutional reporting for the UK’s BTR market should look like. In short, investors and operators will need to focus on figuring out how they will deliver the right data and metrics, from investment to the property and the individual unit, and back again. This includes the three strands of investment management, asset management, and property management.
Some specific areas where BTR managers often encounter challenges include lease management (e.g., occupancy rates and market rate pricing), rent collections, cash management, and maintenance including work order status tracking. At REdirect, we prioritize identifying challenges up front and addressing them as we work with our clients on software implementations or customisations.
A number of established software solution providers have helped U.S. multifamily investors and operators to automate and digitize various processes, increasing efficiency and ultimately improving ROI.
Yardi has taken its business model to the UK market, providing an all-in-one solution that helps you manage the entire process, from marketing to leasing and beyond. It has even responded to the Covid crisis by adding innovative contact-free solutions such as virtual tours and smart door opening. Other solutions include MRI’s QPM and MRI-X products, and RealPage’s PEX, a UK-based product it acquired in 2017. PEX was historically focused on student housing, but has expanded into the BTR market.
What does this all mean for BTR investors and managers?
Leveraging Existing Technology to Help Define Process
“Sometimes we see that technology can drive processes,” says REdirect Principal Josh Malinoff. “If a solution provider is able to offer a streamlined software product for a local market, companies can use this to help define their processes and their control and risk mitigation.”
Revenue management software has been well established in the United States for around 20 years. Used well, these tools allow owners and managers to optimize their pricing structures and lease terms for maximum ROI and a healthier bottom line.
The right technology can take the guesswork and potential for human error out of this equation, using machine learning and AI in a similar way to modern airline and hotel pricing systems. These solutions are very new, but the more data we gather over time, the more accurate and refined they will become.
Providing a Holistic Experience
As we’ve discussed, today’s tenants are choosy and discerning. With more people renting out of choice as well as necessity, these individuals expect value for money. Services and amenities are becoming increasingly important in the BTR market, and the right technology can help you provide the kind of renting and living experience that the modern tenant demands.
Defining and Refining KPIs
Many businesses make the mistake of implementing what we refer to as “reporting for reporting’s sake.” This results in a lot of extra work without always seeing the accompanying results. Instead, our focus is to help you define your key performance indicators (KPIs) and pull data from your software that can help you achieve those goals and increase your ROI.
There are some general KPIs that are likely to be relevant across the industry, and others that will be more nuanced and specific to your local market or types of investments. Systems such as machine learning and Robotic Process Automation (RPA) allow you to access more timely and accurate data.
Thanks to the capability of the enterprise resource planning (ERP) systems on the market, you can create custom dashboards focusing on your particular KPIs.
As we’ve seen, BTR is a huge and growing market, and UK (and other international market) investors and managers have a tremendous opportunity to learn from the multifamily development model in the United States.
From talking to our clients, prospects, and industry advisors, we have noticed a trend in which many companies are either continuing to use legacy systems or attempting to put together their own solutions using disparate systems that do not work efficiently together. With this unprecedented growth in the space and the opportunities it presents, now is the time to re-evaluate how you approach reporting, data gathering, KPIs, and data visualization.
Implementing new tools and processes can seem like a big investment in terms of time, resources, and money. However, when you are working with a project worth millions or even billions, every percentage point really does matter. The right software solutions and support to use them properly can help you move the needle in the right direction.
The REdirect team is highly capable of helping investors and operators deliver the results they need by leveraging new technology and modern ERP software. We are here to help and would love to hear from you. Drop our friendly and knowledgeable team a line, and we’ll discuss how we can help you get started.