If An Investor Understands The Differences Between BTR And SFR, They Will Find Opportunities

The UK’s build-to-rent sector is growing fast. More than £4B was invested in BTR in 2021 — almost half of that in Q4 — and many investors have announced their intention to continue to scale up investments in 2022. One element of BTR in particular is picking up speed: single-family rental.

Until now, BTR investment has focused on cities. Currently, 90% of completed BTR schemes are in urban locations. Those interested in SFR, however, are generally focusing on creating rental homes for families in suburban locations. To scale a brand at the speed they’re aiming for, developers need to understand how SFR differs from BTR, Yardi Senior Account Executive Georgie Drewery said.

SFR Versus BTR

Overall, the number of people renting in the UK is growing.

“This is partly due to the rising cost of buying a home and partly due to the lifestyle renting offers,” Drewery said. “People enjoy the flexibility renting offers as they don’t want to be tied down, for example. Given the rise in cost of living, any lease that includes utilities, for example, will add a cost certainty that gives peace of mind.”

As a result, BTR investors have realised that their target market is not only young professionals. People are renting for longer and the number of families renting is increasing, Drewery said. These residents will have different needs to what landlords of apartment blocks generally cater for.

“In London, BTR schemes offer a community and events such as wine tasting,” she said. “In SFR, people are attracted to homes with more space, such as a home office, and larger gardens. They are also looking for a longer lease so they can decorate, for example, and create a home for the longer term.”

In response, developers and investors are increasingly looking for opportunities outside London and other major cities, Drewery said. Here, there is often less legislation to battle through and more land availability. This also presents an opportunity to diversify a portfolio and create a brand for residents to follow.

“Increasingly, developers have different brands targeting different demographics,” Drewery said. “One for young professionals, offering events and amenities, another geared towards students and now an SFR brand targeting families. Residents will grow to know a company and, as their life evolves, they might move to another product as they can expect a certain level of service.”

How The Tech Varies

As well as creating a different offering for each demographic, an SFR operator might need to deploy different technology compared to what is commonly used in BTR.

“In BTR, operators create a community spirit using a resident app, which includes aspects such as selling pages and events listings,” Drewery said. “They also often have a building concierge, whether digital or in person. All this is less likely to feature in SFR, although residents will expect an equally high level of connectivity and ease of managing their property using technology.”

Although SFR leases will tend to be longer than BTR leases, Drewery said, managing processes using solutions such as Yardi’s is just as important.

“Many SFR operators have an ambition to grow their portfolios at a higher rate than BTR, because there is space to do so outside London,” she said. “Instead of taking years to complete a scheme, which is often the case in London, an SFR developer might have 500 units today but will have 5,000 in five years. At this scale, the ability to automate inspections, approve invoices and so on is very important.”

Yardi’s solutions can be branded for a client’s different product offerings and give residents access to the tools relevant to that development. This simplifies the process of scaling up a portfolio whether an investor is targeting a city or a suburban location, Drewery said.

The supply of rental homes across the UK is low; in Q4 2021, supply was 39% lower than the 2017-2019 average. As private landlords continue to exit the market, due to factors such as tax changes and mortgage rates rises, and rents continue to increase, investment in large SFR schemes is likely to increase. A developer that understands the product now, Drewery said, is well-positioned to take advantage of this growing market. 

This article was produced in collaboration between Yardi and Studio B. Bisnow news staff was not involved in the production of this content.

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