Why build to rent is flourishing in Birmingham

With a swelling pipeline of new schemes, Birmingham’s build to rent (BTR) sector is taking off. Writing for Building magazine, AECOM’s BTR specialists Peter Lakin and Sean Cook investigate the sector and provide a cost breakdown to help developers, funders and operators make the most of their investment.

Build to rent (BTR) may be booming across the UK, but Birmingham has taken a while to get the message. Now at last that is changing.

Projects such as Nikal’s major city centre development Exchange Square 2 and Blackswan’s Gilder’s Yard are part of an expected pipeline of around 5,000 units around the city. They join existing landmarks such as Exchange Square 1, the Lansdowne in Edgbaston and the Forum in the Chinese Quarter in bringing critical mass to Birmingham’s BTR sector.

Shifts in the Birmingham’s economics and demographics are combining to provide fertile ground for BTR to take root. There’s been significant inward investment over the last decade and organisations such as HSBC and HMRC have brought jobs. Transport infrastructure has been renewed and new cultural landmarks built.

Birmingham’s population growth has been steady, prompted by new jobs and the city’s five universities, which produce 67,000 graduates a year, 50 per cent of whom stay on after graduation. Add to this the West Midlands Combined Authority’s target to build 215,000 new homes over the next two decades, and the result is a big opportunity for BTR funders and developers.

Indeed, in this market, the city’s relatively late entry may work in its favour, with developers able to capitalise on lessons learned from other, earlier projects across the country. We outline some of those key considerations below:

1/Taking a long-term view

Institutionally-backed BTR projects are all about the long haul, so developers entering this market need to build their knowledge and understand the running costs. Balancing capital expenditure and operational costs will enable them to get an accurate picture of a scheme’s returns.

This is the difference between BTR and open-market schemes — even those destined for the private rental sector. With BTR, the organisations and institutions that forward-fund its construction will usually be around for the next 30 years of operation. And while returns on a BTR project are generally lower than for those in the open market, the long-term gains can be substantial.

2/Understanding the end users

A clear understanding of a BTR building’s end-users will also be essential to funders and developers who require a successful return on investment. 75 per cent of Birmingham’s city-centre inhabitants are under 35 years old, so the standard profile of a BTR tenant as a young, single occupier still rings true.

That said, the tenant landscape is diversifying. Surveys show families, older working renters and retired baby boomers moving into BTR properties. These tenants will have different criteria when searching for a rental property so developers and designers must decide how best to accommodate them.

However, common to all will be a need for appropriate amenities, decent transport as well as a good level of maintenance and management support.

3/Specifying for success

The standard one-bedroom configuration may not be the best fit for the diverse BTR demographic. Offering homes with more bedrooms and a variety of building typologies may be a better fit for local housing needs. Nevertheless, the overriding ambition must be to deliver an efficient building with acceptable whole-life maintenance overheads.

Showy, expensive buildings – such as tall towers – may build brand identity in an emerging market, but they may take longer to recoup their build cost. Developers should challenge design teams to make ease of maintenance and management a critical path from concept design onwards.

4/Sustainability and standardisation

Sustainability must be an integral part of the design and construction phase. Green technology and renewable energy should complement efficient thermal performance, backed up by responsible sourcing during procurement and construction.

Furthermore, standardisation of products and components will help bring down the overall cost of a scheme, especially if a developer is looking to build out several schemes in the city. Approaches such as modular and offsite construction can bring factory‑style safety, efficiency and quality to a project.

An edited version of this article first appeared in Building magazine in January 2020