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QUARTERLY ANALYSIS : BTRBuild to Rent - Analysis by Sam Long, February 2018

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38 Heath Drive, Camden

During the last two years London’s BTR sector seems to have reached an uncanny level of stability - the headline numbers describing the sector during 2017 very closely match those for 2016. In both years, give or take a few hundred units:

ӹ The same number of units entered the BTR construction pipeline.

ӹ The same number of BTR units were completed and released on to the lettings market.

However, a couple of interesting differences emerge if you look beneath the headlines and compare the type of schemes that completed during the two years:

ӹ 2016 was unusual in that two thirds of BTR units that completed during the year were in GPDO office-to-residential conversion schemes. This compares to a fifth of BTR units completed during 2017.

ӹ Meanwhile 2017 is unusual in that two fifths of BTR units completed during the

BTR Report February 2018

EXECUTIVE SUMMARY

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year were in Inner London boroughs, which is a record high proportion - 2016 was more consistent with the historic norm of about one fifth.

The mix of BTR completions in any year will always be a function of what previously entered the BTR development pipeline, and 2015’s legislation-related boom in GPDO construction starts is the obvious reason behind the relatively high number of GPDO completions during 2016.

The relatively high proportion of Inner London BTR completions during 2017 is less easy to explain. However, it may have something to do with changing developer sentiment over the course of 2015 and 2016, when it became clear that the wider Inner London sales market was well past its 2013 peak.

During 2015 and 2016 Inner London saw a significant rise in the number of ‘build to sell’ units effectively being switched into the BTR sector during construction. Four of the ten largest BTR blocks to complete during 2017 fall into this category. Barratt’s bulk sale of 118 units at Nine Elms Point to Greystar is the most widely reported example. In the other three cases the developers concerned decided to retain the units in-house rather than expose them to the sales market.

Whatever their route into the sector, BTR blocks from the class of 2017 include some of the most distinctive offerings from the sector to date. As well as Greystar a number of other operators have opened new Inner London outlets that are worthy of note for various reasons, including size, service offering and construction methodology. These include Get Living London, Essential Living and Regal Homes.

Of course this is not to say that nothing of significance has completed in Outer London during 2017: M&G, Grainger, Quintain, Fizzy Living and Aitch Group have all launched major outlets that

Period Starts Completions Sales

2009: Q1 - - -

2009: Q2 1,216 44 -

2009: Q3 95 - -

2009: Q4 - - 138

2010: Q1 224 - -

2010: Q2 - - -

2010: Q3 94 166 -

2010: Q4 110 60 -

2011: Q1 23 - -

2011: Q2 132 - 267

2011: Q3 63 - 1,440

2011: Q4 173 - 24

2012: Q1 - 138 165

2012: Q2 50 362 73

2012: Q3 73 55 134

2012: Q4 93 172 401

2013: Q1 257 132 140

2013: Q2 288 149 654

2013: Q3 342 422 404

2013: Q4 799 250 141

2014: Q1 283 416 415

2014: Q2 253 835 253

2014: Q3 319 399 339

2014: Q4 861 102 970

2015: Q1 3,349 179 3,054

2015: Q2 1,513 388 1,875

2015: Q3 1,338 812 1,183

2015: Q4 1,423 336 715

2016: Q1 1,443 852 2,062

2016: Q2 1,259 588 1,204

2016: Q3 1,013 1,388 1,102

2016: Q4 699 710 1,049

2017: Q1 465 948 762

2017: Q2 1,185 973 1,164

2017: Q3 2,085 828 2,176

2017: Q4 951 683 1,316

BTR Report February 2018

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Year 2009 2010 2011 2012 2013 2014 2015 2016 2017Starts 1,311 428 391 216 1,686 1,716 7,623 4,414 4,686Comple9ons 44 226 - 727 953 1,752 1,715 3,538 3,432Sales 138 - 1,731 773 1,339 1,977 6,827 5,417 5,418

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2009 2010 2011 2012 2013 2014 2015 2016 2017

Starts Completions Sales

committed BTR pipeline – Each BTR development described:

• Is under construction or is complete. (Permissions are not included here but are detailed in the accompanying online database.)

• Has 20 or more BTR units.

• Is – or on completion will be – owned and managed as an unbroken block.

• Is recent: schemes completed before 2009 are not included.

‘Sales’ of units to the BTR sector include both bulk sales from developers to BTR companies and in-house starts by BTR companies themselves. Where BTR sales are agreed before construction start we count them at construction start, otherwise we count them as close to time of sale as is possible.

significantly push the boundary of what is on offer to the associated local lettings markets - in terms of rental levels, as well as of product and service.

As a result of factors described above, BTR units completed during 2017 generally tend to be more expensive to rent than those completed in 2016. Despite this, the average let-up rate for both years is the same, indicating that there is demand across the rental price spectrum.

Looking ahead, 2018 should yield another crop of distinctive completed BTR developments. Realstar’s flagship development at Elephant and Castle completed in January and will be followed by a number of projects from operators already mentioned above, plus the likes of A2Dominon, Criterion Capital, Folio London, L&Q PRS, Manhattan Loft and Peabody.

THE NUMBERS

This document provides an overview of London’s

BTR Report February 2018

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KEY STATISTICS

The figure and table on the previous pages show BTR starts, completions and sales across all London local authorities since 2009.

During 2017:

• 4,700 BTR units started construction.

• 3,400 BTR units completed.

• 5,400 units have been ‘sold’ to the BTR sector - including bulk sales, in-house starts by BTR operators and developer decisions to retain units previously being built to sell.

• As illustrated in the figure below, BTR accounted for 24% of all new homes sold in London during 2017.

• As illustrated in the figure on Page 9, 80% of ‘sales’ to the BTR sector happened on, or prior

to, construction start. 20% happened after construction start - compared to 30% in 2016, a peak that was driven by a spike of activity in Inner London.

At the end of 2017 11,300 BTR units were under construction in London, which is 18% of all new homes under way in the capital.

Median gross BTR Rents across London are as follows:

• Studios: £1,090 per month

• 1-beds: £1,300 per month

• 2-beds: £1,560 per month

• 3-beds: £2,180 per month

In very rough terms, two thirds of BTR units completed during 2017 have rents higher than the above figures, compared to one third of those Year 2009 2010 2011 2012 2013 2014 2015 2016 2017

TotalSales 6,884 8,350 12,055 12,925 21,590 22,551 26,341 20,874 22,234BTRSales 138 - 1,731 773 1,339 1,977 6,827 5,417 5,418SaleswithoutBTR 6,746 8,350 10,324 12,152 20,251 20,574 19,514 15,457 16,816

2% 0% 14% 6% 6% 9% 26% 26% 24%

-

5,000

10,000

15,000

20,000

25,000

30,000

2009 2010 2011 2012 2013 2014 2015 2016 2017

Total Sales BTR Sales Sales without BTR

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completed during 2016. Note that this reflects changes in various mix related factors and not a market movement.

The London-wide average let-up rate for schemes that fully let during 2017 was 13 units per month, compared to 13 in 2016, 26 in 2015 and 23 in 2014.

Based on the 23,700 committed BTR units in London, that are either under construction or have completed since 2009, the top five BTR companies are:

1. Quintain - 2,320 BTR units

2. Get Living London - 2,300

3. L&Q PRS - 2,250

4. M&G Real Estate - 1,330

5. Canary Wharf Group - 1,110

Based on the 12,400 BTR units completed in London since 2009, the top five BTR managers are:

1. Get Living London - 1,810 BTR units

2. London & Quadrant Housing Trust - 1,240

3. Genesis Housing Association - 600

4. The Acorn Group - 550

5. Fizzy Living - 430

My mobile number is below; it you have any questions whatsoever, please do not hesitate to call.

Sam Long 26th February 201807900 682423 e: sam@moliorlondon.com

BTR Report February 2018

Year 2009 2010 2011 2012 2013 2014 2015 2016 2017TotalBTRSales 138 - 1,731 773 1,339 1,977 6,827 5,417 5,418BTRsalesagreedbeforeconstrucAonstart - - 24 50 695 1,334 6,023 3,724 4,341BTRsalesagreedaBerconstrucAonstart 138 - 1,707 723 644 643 804 1,693 1,077

0% 1% 6% 52% 67% 88% 69% 80%100% 99% 94% 48% 33% 12% 31% 20%

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2009 2010 2011 2012 2013 2014 2015 2016 2017

Total BTR Sales BTR sales agreed before construction start BTR sales agreed after construction start

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METHODOLOGY 3

EXECUTIVE SUMMARY 5

BTR CONSTRUCTION 11

1. BTR construction starts 12

2. BTR construction volumes 14

3. BTR construction completions 16

BTR SALES 19

4. Total BTR sales 20

5. BTR sales agreed before construction start 22

6. BTR sales agreed after construction start 24

BTR RENTS 27

7. BTR rents 28

CONTENTS

FRONT COVER PHOTO

Uncle Elephant & Castle, SouthwarkPhotographer: Amanda Denny

DISCLAIMERWe endeavour to employ high standards when preparing reports, analysis, data and events. However they are intended to provide general information only and no legal responsibility can be accepted for any loss or damage resultant from their contents. While every effort is made to avoid errors, information is subject to continuous change and we are therefore unable to guarantee the accuracy or completeness of data provided, and cannot be held responsible for any errors or omissions.

BTR Report February 2018