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BTR – A Positive Outlook in the Covid Environment

The Covid crisis may well present a boost in demand for community led Build-To-Rent schemes.  In a period of economic uncertainty, a mortgage market in flux and a weaker sales market, BTR has the potential to step into the supply side. However, BTR cannot be taken for granted and the sector still faces challenges in Scotland due to build costs, planning policy, and a potential rise in Affordable Housing requirements (Edinburgh).

BTR supply in Scotland is moving upwards but still lags other UK regions.  Glasgow has over 4,800 BTR and MMR units consented or in pre-planning, whilst Edinburgh has over 6,000 units if c.2,800 non-grant funded MMR units are included.

Statistics and a map of Scotland BTR/MMR can be found in the link below:

BTRMMRTOTALTOTAL  (inc. Pre-Planning)
Glasgow4,0983364,4344,871
Edinburgh2,9952,9755,9706,696
Aberdeen6346341,094
TOTAL7,7273,31111,03812,661
Positive key messages and trends:
  • The appeal of BTR (and Co-Living), post Covid, is likely to be enhanced in the face of economic uncertainty and a weaker sales market.  BTR can step into the supply side of the market.
  • The proven ability of BTR (and Co-Living) to enhance communities through a professionally managed rental offering (for living and working) will only increase the consumer appeal of the sector post Covid.
  • Non-grant funded Mid-Market-Rent (MMR) units are now making a serious contribution to key worker unit numbers – over 3,000 across Scotland to date.
  • The BTR pipeline in Scotland has capacity to grow.  Of 82,620 regional BTR units (source: BPF) complete, under construction or in planning, approx. 10,000 are in Scotland.
  • Post Covid, planning policy will need to be flexible in order to encourage economic resilience; this should be positive towards new formats of BTR.
  • Co-living schemes, which can provide cost effective homes for key workers in central locations, will need planning departments in Scotland to be open minded in terms of current policy.
  • BTR is likely to spread to suburban locations in the form of low rise flatted developments and houses; where the majority of economically active people live.
  • Increasing the Affordable Housing % in Edinburgh may have the opposite of the intended effect; if BTR schemes in the city become less viable, investors may simply direct their capital to other regional cities.
  • Professionally run BTR communities result in happy tenants which in turn reduces void rates and ensures a resilient income stream.  That outcome should attract further investment from Institutional investors.
  • Key workers, by definition are the most resilient of tenants during a period of economic uncertainty.  BTR schemes targeted at this demographic could command tighter yields than premium high value schemes.
  • As an asset class, Residential (specifically BTR) is moving up the agenda of institutional investors in terms of their real estate asset allocation. In Scotland we need to ensure that we capture that investment.
The Future

The future of BTR (and MMR) should be bright post-Covid due to the positive attributes of the sector – proving to be resilient in terms of community building and stable of income.  In Scotland policy makers have come a long way in the last 18 months; there remains a need to continue to work with developers and institutional investors to ensure that we capture the potential wave of institutional investment rather than lose it to other, hungrier and more flexible regional cities.

 

Article by Will Scarlett following his participation as a panellist in the CMS Scotland Webinar – ‘BTR in Scotland – A Tale of Two Cities’ on Tuesday 12th May alongside Alex Blyth (City of Edinburgh Council) and Ed Crockett (Aberdeen Standard Investment).  Webinar chaired by Margaret McLean, Partner CMS Scotland.

A copy of the webinar recording can be found here.

Published 14.05.20