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Martin Property Group.pptx

  1. Build to Rent Market Update May 2022
  2. 2021 Commercial Real Estate Investment Market
  3. 2021 Commercial Real Estate Investment Market £16.7Bn (Q1 2022) Biggest Q1 since 2015
  4. Key Trends • Huge demand in Industrial and Build to Rent • Average yields low and stable… • Office demand seems subdued • Hotel market witnessing a huge increase in demand compared with 2020 • Shopping centres uptick and regen story • Availability of stock is an issue
  5. Build to Rent Volume • £5.3 Bn of BTR Deals = 9.3% • £12.5 Bn of Alternative Deals = 22% • 2016, BTR = 2.5% of volume • 2016, Alternatives = 5.8% of volume • Capital rich market… difficult to execute deals?
  6. Yields... • Focus on Central Manchester • Forward funding yields 4.25% to 4.50% • Compared with 4.75% to 5.00% in 2016 (50bps compression in 5 years) • Stable yields becoming available • Sub 4% providing a 50-25bps compression from forward funding.
  7. Case Studies
  8. Case Studies
  9. Data Benchmarking • Needs to be standardised across the sector • Operational costs disparity creates net yield disparity • Gross yield and £psf is more sensible • Although benchmark schemes are being completed off market which makes it difficult for agents to accurately understand net yields • Benchmarking off ERV is not acceptable
  10. Occupational Demand • Extraordinary lease-up rates – e.g. Kampus • High levels of demand replicated across all key cities for good quality product • Constrained supply over the next 1-3 years • 2000 to 2010 stock suffering (BTL market) • We now have a mixture of product at different price points – but it’s still not cheap? • BTR is a lifestyle choice and does cost money…
  11. In 2017… • We discussed the proposed high end nature of the Central Manchester BTR market…
  12. Operating Costs • The spread of operational costs is now significant • 21% to 34% for Central Manchester BTR • Expensive amenity requires scale • Permanent void and churn is critical in huge schemes • Reform needed when benchmarking data • Difference between commercial real estate investment and BTR / Alternatives • Significant savings on single-family homes
  13. Single Family Homes
  14. Single Family Homes • Market awash with capital – over £5Bn targeting the sector. • Volume housebuilders are difficult to work with and struggle to execute institutional deals. • SME House Builders to the rescue? • Investors creating their own platforms? • Project Thistle (£150m – benchmark deal)
  15. Difficult deals… • Stable stock hardly exists… investor strategies tend to be long term hold • Forward funding is generally hard work (for both investor and developer) • Interest rates rising will begin to reduce geared IRR profiles • Capital allocations across different asset classes can change rapidly • UK strong value compared with Central Europe.
  16. Why BTR? • Discount to VP on forward funding deals • Not covenant reliant • Extraordinary levels of occupational demand across all markets • Growth captured year on year where possible • Portfolio diversification • Perceived as a safe asset class • Interesting sector • Institutionally friendly lot sizes (£30m to £100m) • ESG friendly
  17. Summary - Mature Manchester • Manchester continues to be the BTR Capital of the UK • Lots of the benchmark data is coming from schemes here • Interesting to see first generation refreshing • Understanding the asset class in more detail from a pure operational point of view • Entry yields, Op Costs, Absorption, Exit yields etc. • Mix of product in terms of price point compared with other cities
  18. What about emerging markets? • Please can we think of a word more fitting than secondary? • Viability issues • Land availability • Transport infrastructure • Local amenity • Local authority intervention • Case Study…
  19. Case Study… Clay Works
  20. Challenges/Predictions • Build cost inflation continuing to cause problems across the board • Consumer inflation and affordability • Rising GILT rates and interest rates • Residual land values to reduce • Elements of distress – both developers and main contractors
  21. Challenges/Predictions • Single family volumes to increase as a proportion of BTR volume • 10 years or more of forward funding with limited stable stock available. • Volume to become tranquil between £5Bn and £6Bn • Local authorities to use BTR to reinvigorate town centres within mixed use regeneration master-plans