As I and Grant Thornton colleagues head off to the MIPIM conference in Cannes, my thoughts turn to the commercial development investment trends in Europe and further afield. It strikes me that while the UK is loosening some of its ties with Europe through the triggering of Article 50 (the formal process of leaving the EU), it is at the same time increasingly adopting an investment asset class more often seen in Europe.
An emerging new asset class
This is in the real estate sector, of course, where the UK’s decades’-old vision of a ‘home-owning democracy’ appears to be under substantial threat. The UK government’s recent Housing White Paper is clearly in support of a shift towards a sector that’s less focused on private ownership and more on rental. And that’s only going to accelerate the emergence of a new asset class (‘build-to-rent’) that’s far more familiar to observers of countries like Germany, France and even the US.
It’s not all about policy, however. We’re seeing concrete action on the street as well – albeit not much to date. So far, it’s estimated that private rental new builds supported by institutional investors total just 7,800 homes across England and Wales, close to 60% of which are in London.
However, things are ramping up fast, with 48,000 further homes in the pipeline. While that’s a long way off matching Germany– where around 57% of housing is rented, it represents a sudden and significant change in emphasis.
Keen investor interest
It’s not surprising that investors from countries across the world are watching this emerging trend with enormous interest.
But there’s a problem. While the infancy of the ‘industrialised’ UK private rental sector means that significant early-mover opportunities abound, there is also a dearth of hard data to help investors mitigate some very substantial risks.
In short, there’s no ‘roadmap’ to help them decide what to build, who to build for, and where to build.
Answering the questions that matter
At least, that was the case until very recently. Now there is a guide – based on the latest real estate, demographic, socio-economic, financial and environmental data – that enables multi-dimensional analysis of any opportunity in the private rented sector. And it does this in a straightforward manner, by providing clear answers to the three questions that really matter:
- Who will rent my property, and for how much? (In other words, how do I create housing solutions that people want and will pay a premium for?)
- What product will optimise my rental income? (As well as types of property, this covers the most successful types of building technology used in other countries.)
- And where’s the best location for maximum profits?
Detailed financial models
This is a service called ‘PRS Insights’ [PDF - 908KB] , which we’ve developed in partnership with housing specialists arc4. Critically, it does more than simply providing the answers to these questions, advising you on who you should be building for and what sorts of property and location are best for that market sector. It also provides detailed financial models – one covering the development appraisal, and another on the operating performance of the investment over the short, medium and longer terms.
In other words, it provides everything needed to make informed investment decisions and achieve that elusive balance between risk and opportunity.
It’s a tool you can use on its own or in conjunction with other solutions. For example, we have a pioneering new analysis service that means you can also track the performance of the housebuilding process. Doing so can be critical for identifying the key areas for improvement, and, as a result, any opportunities to increase supply.
This tool tracks the full pipeline from planning applications to completions, giving developers invaluable information on those areas with the highest approval rates and the models driving the best ROI. Local authorities can also use it to track the conversion rate and speed of progress from approval, to construction, to completion, so ascertaining the areas they need to address to make the process as efficient as possible.
Now, I don’t expect you to take my word for all this through just reading this blog. As I mentioned earlier, I’m going to be at the MIPIM conference in Cannes from 14 to 17 March. There, I’ll be part of a Grant Thornton team with deep, hands-on knowledge of different national real estate markets across Europe, including France and Monaco, Sweden and, of course, Germany.
Emerging trends across Europe
I think our spread of knowledge across markets gives us a unique perspective on the potential of the UK’s emerging build-to-rent sector. More than that, it means we can comment first-hand on what has worked and what has not in other markets. And it enables us to discuss emerging trends right across Europe, including insight into what Brexit might mean for European real estate in the widest context.
So I very much hope that you’ll be able to meet up at the event with one of my colleagues or myself. To make sure, contact me – and we’ll look forward to seeing you there. Otherwise, make sure to drop by our MIPIM stand – FIABCI Pavilion P4. B 1