UK housebuilders are slowing construction work in response to shrinking demand, mainly caused by rising mortgage interest rates. The UK’s largest housebuilder, Barratt, has warned of at least two further years of ‘uncertainty’.
The changing housing market is creating further demand for high-quality rented accommodation, which has been increasingly lacking in the UK for some time. Now, however we are seeing exponential growth in a sector that is relatively new to the UK: Build-to-Rent (BtR).
In its latest report, property consultancy Knight Frank highlights that although the first nine months of 2023 were slower (due largely to rising construction costs), the UK BtR market is ahead of its historic average.
This puts investment for the year-to-date at £2.7 billion. But with rising demand, they also predict a 77% increase in the value of the UK’s BtR sector in the next five years.
Developers often target certifications such as BREEAM to demonstrate environmental credentials
For the construction industry, BtR is a market that spans the domestic and commercial realms. These are dwellings and are, therefore, regulated accordingly.
But they’re usually built at scale (high-rise is the most common option), so these buildings are suitable for scaled-up solutions for heating and hot water provision, as well as ventilation and cooling.
In fact, BtR customers are picky about what they’re looking for in a building. A recent report from Sigma Capital noted that customers: “Are not choosing based solely on price. There’s a real focus on quality of both services and property.”
Energy efficiency included
As a result, developers are including outdoor spaces and gyms, but modern renters are also looking for homes that are energy efficient with sustainable features that don’t add to the price tag.
Sigma Capital's research showed that more than half of renters want landlords to provide these features. This is increasingly being reflected in the design and delivery of BtR projects.
Several recently completed projects include solar PVs, for example. And many of the latest BtR properties are entirely electric; as a result, developers can opt for heat pumps to provide heating and hot water to each apartment.
Not only does this optimise efficiency and cost-effectiveness for tenants, but it also reduces the carbon footprint of each building. BtR developers often target certifications such as BREEAM to demonstrate their environmental credentials, so decarbonising heat makes a significant difference.
One of the key features of BtR properties is that they offer on-site cafes and retail outlets, gymnasiums and laundries. There are opportunities here to recover heat extracted from these areas and apply it to DHW supplies, for example, to reduce energy use and cut tenant utility bills.
As dwellings, BtR developments fall under the new Part O (Overheating) of the Building Regulations (2021). This means designing apartments to avoid overheating during summer months and applies particularly in London and Manchester city centres (where BtR developments are popular).
Natural ventilation can be used, but it is harder to apply in these urban environments, where outdoor air quality is poor and noise infiltration can be problematic.
As a result, mechanical ventilation with heat recovery (MVHR) is a popular option for BtR apartment buildings. This not only helps to lower temperatures in summer but also enables a healthy flow of outdoor air in cooler months without lowering indoor temperatures.
As a sector, BtR is well-placed to deliver sustainable new homes and provide indoor environments for better occupant health and comfort. The ability to adopt heat pumps, MVHR and other sustainable options at scale means that the application of these technologies can be very cost-effective.
What’s more, developers are already aware that buildings with sustainable credentials are more marketable, improving the asset value of the buildings.
With the rise of BtR, we have developers who don’t simply hand over the building to buyers (as in traditional Build-for-Sale housebuilding), but they hold on to the property for many years. This puts a new focus on long-term value – and on maintaining a reputation for quality to keep new tenants coming in.
The rise of renting quality homes may be disruptive enough to change attitudes across the whole housing sector and to drive greater take-up of low carbon heating and IAQ technology.
Mike Egan, Business Development Manager