35 per cent growth in London’s luxury build to rent sector
Prime Central London’s build/own-to-rent residential sector has grown by 35% over the last five years with 55% of tenancies for lettings priced above £2,500 per week now being in properties owned by either build/own-to-rent investor-developers or professional investors, says a new survey of tenancy data by leading Prime London estate agent Aston Chase.
Aston Chase highlight that five years ago the same figure was just 20%, with the Prime Central London lettings market in 2015 dominated by private landlords and “accidential landlords”; the latter being vendors trying to sell their properties and choosing to let them in order to generate income or to facilitate their move.
Aston Chase observe that this transform underlines the rise of professional build-to-rent investor-developers and other professional investors in the capital’s Prime lettings market. With a backdrop provided by well known Stamp Duty and Brexit issues, the emerging build/own-to-rent market in Central London is being driven by a lack of supply, real estate investors seeking good returns; and rising demand from American, British and European tenants.
The capital’s Prime build/own-to-rent sector has significant growth potential over the next five years says Aston Chase. The sector is forecast to grow by 30% per annum over the next five years and by 2025 the UK’s build-to-rent industry could have a valuation of £75bn, according to the British Property Federation.
Aston Chase categorise a Prime Rental as a London residential property being let for £2,500 per week up to £5,000 per week. Super-Prime Rentals are properties being let for £5,000 per week, up to £40,000 per week.
Aston Chase explain that the build-to-rent sector consists of private rented residential dwellings designed specifically for renting rather than sale, typically owned by private or institutional investors and investor-developers.
Aston Chase highlight that the build-to-rent sector is well established in the USA, growing over the last three decades to become a market currently valued at over £65bn, with 43,000 purpose built rental properties constructed in the United-States per annum, according to Barclays.
Aston Chase contrast this to the build-to-rent sector in London and the UK which is still in its relative infancy. In the UK the industry only started in earnest over the last decade and there are currently just 14,800 completed and tenanted build-to-rent properties across Greater London: in a city with over 3.56m dwellings in total.
The capital’s current build-to-rent schemes are located in large purpose built developments, providing 130 units, with another 19,300 in the construction or planning pipeline, according to the British Property Federation.
Moreover Aston Chase highlight that the majority of build-to-rent stock in London is designed for the starter and lower-middle sectors of the lettings market, built in Canary Wharf, Docklands, Wembley and South London. The properties are studio, one and small two bed flats with lettings values averaging £380 per week (Canary Wharf) and £459 per week (Wembley) (Source: LONRES).
Aston Chase say that the build/own-to-rent market that is currently emerging in Central London is totally different to the outer London market in terms of pricing, product and investor-developers.
The luxury build/own-to-rent sector in Central London is for lettings values starting from £2,500 per week up to £40,000 per week. The addresses for these luxury build/own-to-rent properties are some of London’s finest including St John’s Wood, Marylebone, Regent’s Park, Little Venice, Hampstead, Primrose Hill, Belsize Park and Mayfair.
Aston Chase say that the build-to-rent sector appeals to investor-developers since they can purchase a site and build a brand new purpose built rental property at relatively low cost. For example an investor-developer wanting a 4,000 sqft house to let in St John’s Wood can purchase a vacant site and build a new house for around £3m, with the new property generating a rent of £4,000 per week, providing a gross yield of 6.9%.
To purchase and refurbish an existing equivalent house could cost the investor-developer £6.26m, generating a rent of £4,000 per week, with a yield of 3.3%. So the new build route provides a superior return.
The investor-developer then owns the site/asset in a company, which provides them with a tax efficient asset on a balance sheet and a lettings property which can generate a gross yield of up to 6-7%. The asset provides the investor-developer with an income stream, which can also be sold to another investor at a later date.
Aston Chase say that the premium build/own-to-rent sector in Central London is attracting significant interest from investors because the market is currently characterised by a lack of supply, a rise in tenant numbers and the benefits of good yield returns; other attractions include a safe UK investment that provides the investor with an asset and the potential for capital appreciation.
Tenant legislation in the UK is more favourable towards landlords than in continental Europe, allowing them to gain re-possession of their property if required, and the UK offers an unrestricted free-market for lettings, with valuation levels drive by supply-demand rather than rent-caps.
Aston Chase say the Prime London build/own-to-rent schemes are typically bespoke projects providing less than 24 units, with many consisting of individual properties or schemes of just 3-12 luxury homes.
The estate agency calculates that currently around 70% of the Prime own/build-to-rent properties are let on an unfurnished basis, with affluent tenants bringing or renting their own furniture. There is also a growing demand for hotel-like ‘turn-key’ dressed residences, with supporting property management services, where tenants can simply move in and use the lettings property like a hotel suite.
Aston Chase highlight that the average Prime London build/own-to-rent apartment is a spacious two or three bedroom home providing in excess of 1,500 sqft of luxurious living space. The apartments are designed to provide quality yet durability, with features including bespoke kitchens with Poggenpohl appliances, corian worktops and brushed chrome fittings. Bathrooms clad in stone with rose gold fittings. Other features include a balcony/terrace, parking space, lift access and concierge service.
Favoured addresses for Prime rental apartments of this nature include Regent’s Park, Portland Place, Prince Albert Road, Marylebone High Street, Berkeley Square, Grosvenor Square, Bruton Street and South Audley Street. In terms of build/own-to-rent luxury houses Aston Chase say that the typical house provides over 3,000 sqft and offers two reception rooms, four bedrooms, garden and off street parking. In the £5,000 to 40,000 per week super-prime rental sector the houses will also include a gymnasium, swimming pool, cinema and catering kitchen.
Favoured addresses for Prime Rental houses include Carlton Hill, Clifton Hill, Marlborough Place and King Henry’s Road. In the Super-Prime Rental sector the houses are located on Hamilton Terrace, Avenue Road, Wadham Gardens, Acacia Road, Winnington Road, The Bishop’s Avenue and Ingram Avenue.
Aston Chase recently launched Blenheim Terrace, the first Prime build-to-rent scheme to be constructed in St John’s Wood, providing a terrace of newly built five bedroom townhouses, each 4,025 sqft in size, available to let for £5,500 per week. An indication of the significant demand, yet lack of supply in this marketplace, is that prior to Blenheim Terrace even being completed, one of townhouses was rented off-plan.
Analysing its tenancy data over the last two years, Aston Chase reveal that for Central London lettings above £2,500 per week, the largest groups of tenants originate from the United States (23%), Britain/domestic (27%), continental Europe (22%), the Middle East (14%) and other-international (14%).
Aston Chase say that five years ago British/domestic tenants comprised just 15% of tenants, the rise in their numbers due to well known Stamp Duty and Brexit issues. Americans comprise the largest contingent of overseas tenants, and in some addresses such as St John’s Wood 50% of the tenants in the premium lettings market are American expats, working in banking/finance in the City of London or Canary Wharf.
Mark Pollack, Co-Founding Director of Aston Chase said, “The Prime London build/own-to-rent sector is still in its infancy but has huge growth potential. Currently most build/own-to-rent stock provision has been in outer London and aimed at the starter and middle market, with the luxury sector largely overlooked until recently. It is the length of tenancy that build/own-to-rent investor-developers may be prepared to grant that could give them a strong advantage over privately owned rental property. Affluent ex-pats moving to Central London are typically looking to secure a property for up to three years which can be too much of a commitment for a private owner of a single residence who might be renting their home during a temporary change in circumstances.”
Ben Sloane, Lettings Director of Aston Chase said, “Our Prime and Super Prime rental department is seeing the bulk of its activity mainly between £4,000 to £7,000 per week at the moment. St John’s Wood, Marylebone, Mayfair and Fitzrovia are still significantly undersupplied in terms of premium build/own-to-rent and property. There is a big demand for premium rental properties but a significant lack of good supply.”