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Who’s investing?
What’s happening in the PRS market?
Why now?
What do renters want?
Where next?
Who’s investing?
Who? 1994
Who? 2014
Changing markets, changing times..
Why now?
Why? lack of opportunity
Source: IPF 2014
£580
£661
£752
£867
£835
£632
£587
£642 £663
£650 £647
£400
£500
£600
£700
£800
£900
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Commercial Property Universe, £bn
Why? strong relative performance
9 Source: Savills, IPD, Bloomberg
0%
2%
4%
6%
8%
10%
0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%
Annualis
ed t
ota
l re
turn
s (
13 y
ears
)
Risk (Standard deviation)
IPD Commercial Property UK Residential London Residential Equities Gilts
Why? illiquidity remains a feature
-
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
Average 2002 - 2007
Year to Q2 2013
2014 2015 2016 2017 2018
Mortgaged FTB* Mortgaged Home Mover*
Mortgaged BTL Cash Buyers
Help to Buy - Equity Loan Help to Buy - Mortgage Guarantee
Source: Savills Research, CML, HMLR
Help to Buy boosts transaction
levels by around 12%
Forecast transaction levels
in 2018 at circa 1.2 million
Current
housing
transactions
below 1m
Why? help to buy a drop in the ocean
Source: DCLG, HMLR
28,50
Why? supply and demand
Source: DCLG, Savills Research
0%
10%
20%
30%
40%
50%
60%
70%
80%
1915
1920
1925
1930
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
Pro
port
ion o
f housin
g in E
ngla
nd
Owner
Occupied
Social Rented
Private Rented -
5.7m dwellings by
2018
Why? supply shortfalls
Source: HBF, DCLG
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
200,000
220,000
240,000
New
housin
g u
nits p
.a.
Private Enterprise Housing Associations
Local Authorities Demand Projections
Savills Forecast
Why? supply shortfalls across the country
Source: CLG, ONS
0
10,000
20,000
30,000
40,000
50,000
60,000
Net additio
nal dw
elli
ngs/
household
s
Supply 2012/13 Household projections
0
2000
4000
6000
8000
10000
12000
14000
Lower Mainstream (<£450psf)
Mid Mainstream (£450-700psf)
Upper Mainstream
(£700-£1,000psf)
New Prime (£1,000-
£2,000psf)
Super Prime (>£2,000psf)
An
nu
al
co
mp
leti
on
s (
Lo
nd
on
)
Supply (Annual) Demand (Annual)
Source: Savills
Why? supply shortfall greatest below £700psf
Why? rising demand across a wide geography
Source: Census
Why? PRS expanding fastest outside central areas
Source: Census 2011 & 2001
Area % PRS
households
Growth in PRS
households
2001 - 2011
Westminster 43% 37%
City of London 41% 43%
RBKC 39% 27%
Newham 35% 96%
Camden 34% 31%
Area % PRS
households
Growth in PRS
households
2001 - 2011
Barking & Dg’m 19% 176%
Tower Hamlets 34% 135%
Enfield 24% 116%
Hackney 30% 108%
Greenwich 21% 96%
Why? 70% of demand is PRS
Below £700
psf...
...70% of the
demand is for
PRS
Source: Savills
What do renters want?
Segments of demand
Age
2011 PRS
Households
England &
Wales
2011 PRS
Households
London
Up to
25 508,000 12% 77,000 9%
25-34 1,388,00
0 33% 356,000 41%
35-44 994,000 24% 219,000 25%
45-64 931,000 22% 163,000 19%
65+ 395,000 9% 47,000 5%
0% 50% 100% 150%
65+
45-64
35-44
25-34
Up to 25
Growth in PRS Households 2001 - 2011
London England & Wales
Source: 2011 Census
Reasons for renting
0%
10%
20%
30%
40%
50%
60%
70%
80%
18 to 24 25 to 34 35 to 44 45+
Can’t afford the deposit to buy a property
Can’t afford the monthly payments of a mortgage
Don’t meet the lending criteria for a mortgage
Flexibility
Source: Savills / YouGov
Tenancy length less important
0%
20%
40%
60%
80%
100%
18 to 24 25 to 34 35 to 44 45+
Age of Respondent
Would you like a longer tenancy agreement?
Agree Ambivalent Disagree
Source: Savills / YouGov
Reasons for moving
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
London Other cities
Source: Savills / YouGov
Reasons for moving
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
London Other cities
Source: Savills / YouGov
Reasons for moving
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
London Other cities
Source: Savills / YouGov
Location is key
0%
10%
20%
30%
40%
50%
60%
0 to 5 6 to 10 11 to 15 16 to 20
Hig
h o
r m
id im
po
rta
nc
e
Minutes travel to public transport
Walk Cycle Drive
Source: Savills / YouGov
Where next?
New Market Entrants
What? still a long way to go to get scale
0%
10%
20%
30%
40%
50%
60%
70%
Under £10m
£10 to £20m
£20 to £50m
£50 to £100m
Over £100m
2012 2013
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2012 2013
Developer Institution
Private Company Private Equity
Listed Registered Provider
Source: Savills
Where next? build to rent on large sites
Source: Savills Research
Canary Wharf
Wembley
Stratford
Croydon & Hackbridge
Where next? investors moving into development
APG / Grainger plc
£349.4m
Acquisition
National Portfolio
January
M&G Real Estate /
Berkeley Group
£105.4m Acquisition
London & South
East
March November
APG / Delancey
Development JV
Elephant &
Castle, London
Sigma Capital /
Gatehouse Bank
£700m Funding for
6,500 Rental
Homes
across UK
October December
LB Croydon / John
Laing / Essential
Living
230 PRS Apartment
Taberner House,
Croydon
February
Places for People /
Terrace Hill
901 units
West Mids, North
West, Scotland
May
Places for People /
Urban Splash
634 units
North West, South
West, Yorkshire &
Humber
Case study
83 units PRS
200 apartments other
tenures
Savills development
team advised on
comparable
transactions,
aggregate values per
apartment,
Prices, yields,
discounts
Design and
development advice
Case study
18 flats 4x 1b 14x2b
Within block of 40
125 year lease from
2006
£486 service charge
p.a.
Total residential floor
area GIA – 970/sq m,
10,444 sq/ft
Unallocated car
parking
Apartments let on
AST;s or licences
£122,460 passing rent
p.a.
Case study
Savills RCM team plus Bristol Development
Team, regional valuation teams advised on
PfP’s acquisition of £77.7m portfolio
656 apartments in 9 schemes – Manchester,
Stalybridge, Leeds, Bradford, Bristol, Plymouth
481 parking spaces
Ground rents from 540 apartments
Urban Splash retained by PfP for 3 years –
sales and management contract
Growing appetite from major investors in
regional PRS
Where next? deal structures for build to rent
Forward purchase completed stock Deposit plus payment on PC
+ Simple and fast
- Risk to developer, investor control of product
Land acquisition and development + Well understood
- Resource intensive, planning risk, build cost and market risks
Forward fund from a developer Phased payments to cover land, fixed construction costs, investment value
+ Control of product and development risk for investor, certainty for developer
+ Less resource intensive so scaleable
Where next?
Build to rent philosophy
Renter rents the whole building and not just single unit
Foster community experience
Encourage tenants to make ‘friends’
On-site team that know the tenant
Increase rents through product differentiation and offer
Reduce voids by providing exceptional customer service- target 96% occupancy
Budget for and control CapEx
Design for Maintenance and Durability
Charge for Additional Services
Manage, manage, manage!
Management is different
Where next?
Strong rental markets
Transport & Amenities
Economic prospects
Communities / Regeneration
Designed for rental
purposes
Specification
Unit mix and layouts
Scale & efficiencies
Influencing
Performance
Rental pricing
Control of costs
Customer interface
Discussion