Should landlords fear the growth of the corporate landlord?

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Institutional Build-to-Rent:

There is no doubt that projected growing high tenant demand,
and active government encouragement, is leading to the rapid growth of build-to-rent
housing provision. But how much will this affect the traditional private
landlord?

The government is putting great store by its policy of
discouraging the growth of the small-scale landlording sector, and encouraging
the large-scale institutional property investor to provide a lot of the housing
that will be needed in the future, particularly in the larger cities.

So far the strategy seems to be working. The growth of
small-scale buy-to-let is tapering off, and large scale-investments in large
blocks of professional and student housing is surging, with new-builds springing
up everywhere in London and the provinces, particularly in the inner cities.

What could be described as a boom in corporate investment, means
that large-scale landlords in the UK, backed by institutional finance, have
entered the market with enthusiasm. Build-to-rent blocks are springing in major
UK cities intent on what these investors have claimed, is about to “shake up� a
private rented sector (PRS), until now a largely cottage industry dominated by
individual buy-to-let landlords.

Where the small-scale landlord is often depicted as
amateurish and not quite kosha, the big boys promise professional management,
high-end accommodation and services, and stable pricing all designed to provide
long-term renting.

However, build-to rent, although it is growing fast, has a
long way to go before it makes a large dent on the small-scale rental market. Around
97% of the UK stock of rental accommodation is provided by small-scale
traditional buy-to-let landlords, many of them owning just one or two properties.

According to a recent Financial
Times (FT) article, most tenants occupying the new build-to-rent blocks
come from the upper quartile of renters, those with professional or skilled
jobs with above average incomes, though some of the developers says they will
be targeting families with long-term letting in mind.

For those looking for high-end facilities, such as sports
clubs and gyms on site, in shiny glass towers, the formula should work just fine,
but not everyone is happy with the service they are getting, and with Knight
Frank predicting average net yields of only around 3.9% by 2022, it leaves the
big investors with little room for error.

Councils have been notorious for bad management of their
rental properties in the past, from a poor maintenance service, to poor rent arrears
records, these new “professionals� have yet to show they can do better.

The signs are already ominous. A recent survey conducted by
the FT showed that several of their readers had had serious issues. From a
dozen respondents renting from corporate landlords, nine of them reported
problems, from poor maintenance to rising damp and vermin infestation. “I won’t
ever rent from a large company again. Individual private landlords have been
infinitely better and more accommodating,� one respondent told the FT.

Jacqui Daly, director of residential investment research and strategy at Savills had said, “I don’t think build-to-rent is ever going to be for everyone,� but “more and more Britons are likely to be renting from companies rather than individuals in coming years, which should offer greater certainty for many tenants.�

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