Last week saw us host one of our regular roundtable discussions, this time in our Newcastle office and with a focus on Build To Rent (B2R) in the cities of the North East.
Whilst the starting point of the discussion was whether the PRS market in cities like Newcastle has been slower to gain traction compared to other regional cities (and if so, why), it quickly became apparent that the question might not be a valid starting point as the market is getting real traction in the North East and things are now happening rapidly.
There was broad consensus that there were plenty of reasons to be cheerful about the prospects for B2R in the North East:
- Several schemes are now coming out of the ground and in planning. We're beyond proof of concept stage and it's a region and a city people clearly want to invest in;
- There is a large student population with healthy retention rates. Most commentators believe this is the demographic providing the core element of the target tenant market;
- Expectations have changed as the region and its inhabitants have developed over time. Poor quality HMO's in the suburbs no longer fulfil the requirements of a body of young professionals used to living in purpose built and high specification property. The group believes the demand is there and is growing.
Traditionally, some of the challenges the region is facing in this sector were considered, such as:
- Are land values inflated based on previous boom in student purpose build accommodation and stiff competition from the build to sell market?
- Does the oft-cited unfavourable comparison of rent a PRS investor would like to see against mortgage payments on a suburban home on the fringes of the city still ring true and curtail PRS demand in the region?
- Can the product stand out in the region by providing added amenity when some commentators believe extra amenity doesn't drive up rents?
- Do we have the necessary infrastructure here to make schemes on the fringes of cities a viable alternative product?
The evidence points to these not being major impediments to progress in the region, especially if demand for purpose built professionally managed rented accommodation rises as many people expect over the coming years.
In addition, we considered some of the issues facing the B2R sector that are not specific to the region such as:
- There were few specifics in the budget to encourage B2R, which was something of a disappointment given the direction of travel from the housing white paper
- Modular or other off-site construction might be important in the future but at the moment it doesn't necessarily deliver on cost or timing and we have to wait and see as to whether reaching critical mass on that front will be a step-change for efficiency
- Is the sector itself doing enough to make renting a lifestyle choice? The attraction of hassle-free living and professionally managed buildings are obvious to those round the table but who in the sector is coming closest to building a publicly recognised brand?
- Are local authorities doing enough to promote this product through the planning system? Are they attuned to the potential the sector has for creating professionally managed and sustainable places?
- The skills shortage facing all property development is an acute issue for this sector and viable long term solutions are few and far between.
However, it is felt that the combination of the housing shortage, a generational shift in attitudes to home-ownership and rise of accommodation as a "consumer product" all point to the huge potential in the B2R market. Newcastle is an attractive city to work and live in and the investment opportunities here are apparent to all.
Thanks to all that attended. It was fascinating to hear from a diverse and vibrant group of people who are stakeholders in the sector, ranging from consultants and agents through to investors and those with a role in delivering key infrastructure. The debate was lively and it was pleasing to hear such positive conclusions about the prospects for Build To Rent in the North East.
Watch this space for more regional sector roundtables in our offices throughout the country.
If you are interested in attending future events of this type please contact firstname.lastname@example.org.