Investors are queuing up to back a new wave of purpose-built rental properties around the UK. And projects are drawing in former hoteliers, aware they need to deliver a hotel-like platform of support to deliver real value to residents.
Goldman Sachs has provided GBP150m of funding for developer Quintain, to add the next phase of its residential development in Wembley, London. The project, where former hotelier Russell Markou heads operations, provides an ample illustration of the further hotelisation of the home rental market.
Also backing build-to-rent is Invesco Real Estate, which has provided forward funding of GBP73.8m to Packaged Living, to develop and operate a 294-unit development in Milton Keynes, which it is targeting for a 2022 opening. The scheme, named Aubrey Place, will also feature a 44-room aparthotel, designed for shorter term lets.
Ground floor areas at Aubrey Place include areas for events and initiatives, such as local art exhibitions, live music and theatre performances, as well as pop-up community events, all developed in conjunction with the town council.
Also active in the PRS market is Delph Property Group, with its Kooky brand. The company launched Kooky in 2019, and is looking to deploy around GBP500m into the UK build to rent market. Kooky is specifically looking to buy partly developed residential blocks, in a bid to speed up the growth of the brand.
Quintain was taken private by investor Lone Star in 2015, and made an early commitment to the PRS market, under its Tipi brand. Having tried unsuccessfully to sell the group for GBP2.2bn in 2018, Lone Star is now ploughing on with a major residential project around London’s famous Wembley stadium.
Ultimately, the project will feature around 7,500 homes, of which the majority will be for rent. Speaking in 2018, chief executive Angus Dodd promised: “With Lone Star’s ongoing support, Quintain and Tipi have a clear strategy to be one of a small number of dominant market leaders in the UK’s build-to-rent sector.” Last year, Quintain secured GBP172.5m funding for its Eastern Lands quarter with 458 homes from Cheyne Capital.
The Tipi offer at Wembley breaks many of the UK rental market’s traditional rules, offering flexible contracts, no deposits – and allowing residents to have pets. Currently, the Wembley site has rental apartments across five blocks, offering a range of styles from New York loft to Scandinavian cool.
“There are a lot of developers out there who will develop ‘beige’ apartments,” said Markou, who was headhunted from the Wembley Hilton to head up Tipi’s offer to residents. “We want a multicultural, multi-demographic neighbourhood.” And offering choice makes it easier for residents to find something they can connect with.
The Tipi offering at Wembley includes a focus on branded furniture and fittings, with Quintain promoting partnerships with bathroom specialist Kohler, Samsung for technology and John Lewis for furnishings. The master-planned site features a district heating system, pre-installed optic fibre communications and an integral waste extraction system. Fitness club facilities, a nursery, cycle and vehicle storage have been integrated into the design of early phases.
“Retention is key for us, that’s what drives the business,” added Markou, noting that inspiring service is a vital element. “We used to aspire to reach hotel level service – now we aspire beyond hotels.” He recruits carefully, ensuring that the right people are in the customer service team: “We want people who come here – whether they become residents or not – to feel amazed.”
Tipi uses Net Promoter Scoring to benchmark its performance, and also to provide feedback. As a result of that feedback, resident-led events are being developed; and a communal laundry is in creation, for residents to wash items too large for their in-home machines. As Quintain also owns retail units around the site, it is using suggestions to guide the choice of retail tenants. And there are plans – based on evidenced demand – to create co-working spaces, both as a space for residents, and for non-residents.
HA Perspective [by Chris Bown]: New sources of capital, new ways of living, and a model that many would wish to follow. The Wembley landholding that Quintain amassed is of a scale that here is a rare opportunity to build a genuinely joined up rental community. But key elements of the offering must surely make their way to other sites – and when they do, they will start to erode the attractiveness of the traditional UK market, where residents are called tenants, they have to pay a deposit and sign a fixed contract, and they are listened to – here’s to change.
Additional comment [by Andrew Sangster]: The “hotelisation” of residential real estate is principally about how tenants are increasingly viewed as customers / guests and should receive “service” in a similar way. Hence the other buzz term, “space-as-a-service”.
But it is more than this. It is the recognition that there is a role for “place making”, creating an “experience” for the tenant (or rather, the guest) that they can relate to. There’s often a lot of waffle around catering for digital natives and similar, but this really boils down to the provision of decent wifi, something that is appreciated by everyone, not just digital natives.
The key point is that buildings have to be built and run in a way that takes into account the customer / tenant experience at every touch point, from entering, to lifts, to room maintenance and so on. Hospitality has the skill sets to deal with these requirements as hotels have been doing so since they came into existence.
To maximise yield, property owners are having to be more flexible with their terms and accommodate more demanding tenants. Of course, this is not the case for all property, and much is still being let on fixed lease terms where the owner has a distant relationship with the occupier.
The pace of change, however, has been rapid and investment volumes show that these sorts of investments now account for more than a third of all institutional real estate investment. According to Savills, operational real estate or what it describes as “alternatives” (to the three main commercial segments of industrial, office and retail) accounted for 36.3% of investment in Europe in 2018, a level at which it will stabilise at for 2019 too reckons Savills.
The Savills research (called Alternatives Investment) showed that hotels are a significant but minority part of the investment landscape. Hotels account for 6.3 percentage points of the 36.4% of total alternatives investment. The biggest slug by far is multifamily – what the news report above is discussing – which accounts for 15.6 percentage points.
The other big bit is what Savills dubbed “small” alternatives and this includes mixed use, healthcare, student housing and a bunch of other much smaller industry verticals. In rough terms, student housing and healthcare combined represent the same level of investment as hotels. Mixed use, which seems a bit of a catch-all segment, has about two-thirds of the investment level of hotels.
The country with the biggest share of multi-family is Germany, with the Dutch and Swedish markets the next most significant. The UK is a distinct laggard.
Across Europe, the raising of big funds focused on the resi market is expected by Savills to stimulate a swathe of development. As these assets get out of the ground, opportunities for hospitality-related projects are going to be significant.