Build-to-rent: construction, design and costs

Build-to-rent offers a solution to low housing supply, and promises long-term, stable returns for investors and developers – if they can meet the demands of a fast-evolving tenant base. AECOM’s Nick Jones and James Barton report on the market, construction and design issues and offer a cost model of a regional BTR scheme.

Purpose-built rental accommodation – known as build-to-rent (BTR) – has grown from occupying a niche corner of the residential market to becoming an increasingly common feature in towns and cities across the UK.  

At 237,000 homes, there are now almost a quarter of a million BTR homes across the UK that are either completed (73,739), under construction (47,464) or in planning (115,859), according to the British Property Federation. Over the past year, there has been a 44 per cent increase in the number of units in planning, making it the country’s fastest-growing housing sub-sector. In the face of a volatile wider housing market, BTR yields are showing resilience against headwinds. Investment into the sector in Q2 2022 alone was £890 million, up 36 per cent on Q2 2021. 

The changing tenant 

In its most basic form, BTR consists simply of the professional management of building services and maintenance at the building level. For residents in these BTR developments, perhaps tired of the high costs and lack of security which can characterise private renting, the appeal is a professional and consistent approach to building management, greater tenancy surety and better flexibility.  

Build-to-rent developments have tended to attract either aspiring homeowners who, due to affordability constraints, are struggling to get a foot on the property ladder, or urban professionals attracted to the enhanced flexibility, convenience, and building quality BTR living provides. Early BTR developments targeted twentysomething professionals in major urban locations: moving into a well-serviced, new build property seemed the natural progression for a generation used to living in high quality student accommodation.  

Yet demand is evolving. Today, schemes incorporating suburban family homes and accommodation targeted at the ‘grey pound’ are some of the most active parts of the market. The BPF states that single family BTR homes are the fastest-growing sub-sector in 2022, with a 44 per cent increase in the number of units in the pipeline, to 21,000.   

Almost half (45 per cent) of local authorities now have BTR homes in their future housing supply, up from 37 per cent in 2021 and 20 per cent in 2017.  

Design considerations and specification 

With a broadening tenant pool, getting the specification right is key. The level of quality should reflect achievable rental values; BTR properties are typically more expensive to rent than private rentals. Their appeal lies in the security of tenure and flexibility that is often missing in the private rental market.  

Where developments are mixed tenure, the specification within individual apartments should reflect this. It is likely that communal areas will be required to be tenure-blind, but the specification of affordable units should be appropriately pitched against relevant benchmarks. Kitchens, bathrooms, and flooring are areas where the difference in specification can be most visible.   

Even when the baseline specification is adopted, it is important to differentiate schemes in some way to create interest and avoid a clinical, ‘box-ticking’ feel. Differentiation can most easily be achieved through fittings and furnishings – especially in communal areas.  

Early consideration of maintenance and access strategies can enhance layout and optimise design, while simultaneously improving operational efficiency. Selecting an appropriate servicing solution for the building – a significant cost driver – is an important success factor and should be decided early in the development process. Designing wider corridors makes moving in and out, deep cleaning, and repair and maintenance easier when tenancies come to an end.  

Making a connection with the local area can help win planning and encourage existing local residents to embrace the development. Sourcing interesting objects and furniture from local makers and markets, or commissioning works from local artists can also help to create a homely environment, and a sense of the building being anchored in its community.  

These decisions can favourably influence occupier behaviour, leading to less tenant turnover, and lower costs over the life of the building. 

Service offer  

As a minimum, BTR simply provides a more professional, reliable building management and maintenance approach compared to the wider private rental market. Often provision is made for BTR residents to report repairs 24/7, and issues are resolved within agreed timeframes.  

At the other end of the spectrum, BTR can provide a unique living experience through high specification living and communal spaces and extensive amenity provision. State-of-the-art gyms, cinema rooms, hireable entertaining facilities, co-location work hubs and hotel-style concierge facilities can all feature. 

Developers must therefore decide what level of service they want to provide. While early development of the service offer is vital, firmly committing to a particular service offer too early in the development process can be restrictive and limit the ability to respond to changing market requirements, or a shift in project viability, as a scheme develops. 

Conclusion

Whether intended for families or older people seeking a second home, graduates in their first job in the city or a couple in their thirties looking to build a network of friends in a new town, build to rent is an increasingly popular choice for tenants and investors alike.  

The sector has changed quickly in the decade since projects began to appear. Developers will have to remain nimble, flexible and able to anticipate changing needs and tenant types. However, they should take courage from the fact that across the UK, demand for rental property is high and supply is low. As a result, developers that can provide high-quality homes with secure tenancies may find themselves to be the winners in an unstable wider housing market.