Specialist Property Sector Report 2017: Private Rented Sector

Factors bringing market momentum during 2017 

Long term capital chasing secure income

There are significant levels of long-term Capital chasing secure and long-term income streams.

De-leveraging

From April 2017, Landlords will no longer benefit from income tax relief on Buy-to-Let mortgages. A large proportion of highly leveraged investors will need to sell their properties, giving rise to a number of tenants formerly accommodated by this sector needing good quality alternative accommodation.

Population Growth

The UK population is estimated to be 74 million by 2039. The need for high quality housing will be compounded by increasing numbers of people opting to rent rather than buy.

Undersupply of Housing

200,000 - 240,000 new homes are required each year. In recent years approximately 130,000 units pa have been delivered with little or no housing provided by government.

Factors that may serve as a brake to momentum during 2017 

Land Supply

Competition with remove conventional sale house-builders for sites remains an issue.

Planning Policy

The planning policy framework support the sector. Further clarity is required in relation to the affordable requirement for BTR schemes. Minimum space standards need to be addressed to enable developers to build high quality compact schemes, driving building efficiency and offering tenants an affordable product.

The opportunity/value for investors

Bulk Deals from Developers

Developers are considering bulk transactions as part of their wider sales strategy.

Early entry into an emerging sector

Institutional PRS stock in the UK only accounts for 1.8% of the rental market. The opportunity to become a market leader in a rapidly growing sector is huge. Several new entrants have raised initial capital of c.£1billion, allowing the opportunity to develop meaningful scale in this sector.

Overseas Capital

The weakening of the pound will increase appetite from opportunistic overseas invest.

Brand Creation

By creating an authentic brand for their product, investors can benefit from brand loyalty, reducing voids and driving income.

Infrastructure

Infrastructure improvements are creating opportunity in under developed areas of the UK.

Secure Income

The PRS provides very secure and long-term income streams from the security derived in the granularity of the tenancies.

Diversification

The PRS market represents an opportunity to diversify into an expanding sector, benefitting from strong returns and asset management opportunities.

Natural Progression

Entry into the PRS is a natural progression for a number of specialist sector investors. Parallels can be drawn between the PRS sector and the Student and Hotel sectors, enabling investors to capitalise on their already established knowledge base.

What factors do new automotive property investors need to be aware of?

Design

Subtle building design changes and specification differences play an important role in driving efficiency as well as reducing maintenance costs.

Efficiently sized units improve the afforability and result in higher revenueproducing schemes. Quantum is required for management efficiencies.

Amenity Space

Investors need to be aware of over-provision of amenities. Each scheme needs a focus on back of house support space as well as flexible amenity space to future proof its design.

Introduction of ‘London Living Rent’

BTR operators may be required to rent a percentage of their units at ‘London Living Rent’.

Key Attributes

The key attributes for a successful PRS scheme are; proximity to where people work/ study, excellent transport links and a focus on service both within the

scheme and the local amenities.

Predictions for the Private Rented Sector 

In five years’ time, the professionally managed PRS will be the third largest asset class in the UK. We expect investment in the sector to reach in excess of £50bn by 2020.

The market will continue to mature and develop; the largest growth will be in the 35-55 demographic as well as increased demand for family living. Investment in the sector has to date been dominated by UK investors.

This trend has been reversed in the last twelve months and we predict that the inflows of foreign capital and UK-managed foreign capital will double in 2017.

Tenant attraction and retention are synonymous to the success of a PRS scheme. The design of buildings in relation to the impact on tenant’s wellness will become a key consideration from the outset of the development period. 

For more information about investing in this specialist property sector please visit Knight's Frank dedicated Private Rented Sector page.