What can the UK build to rent sector learn from US multifamily? 

While the term build to rent (BTR) would have been met with blank faces in the UK only 15 years ago, its US multifamily equivalent is long established, reaching a record-breaking $63bn of investment in Q1 2022.

The disparity in the maturity of these sectors in each of the two countries isn’t down to any difference in levels of homeownership. In both nations, the proportion of those owning their own home has remained around the 60-70% mark for decades. But the difference in who owns and is responsible for rental properties is stark. More than 40% of the US rental market is under institutional ownership, according to Savills – the largest proportion in the world. This compares to just 3% in the UK, where buy-to-let landlords dominate. The latest English Private Landlords Survey suggests that nearly half of all landlords only own a single property.

Growing institutional role

But this could soon change. As EPC regulations and interest rate rises force a growing number of buy-to-let landlords to sell up, institutionally backed BTR will have an increasing role to play in meeting the required number of rental homes in the UK. At the same time, economic pressures mean long-term investors like pension funds are increasingly interested in the inflation-hedging, counter-cyclical qualities promised by rental income.

Both UK BTR and US multifamily offer a similar model – professionally-managed, customer-oriented schemes known for their onsite amenities and front and back-of-house service teams. But the maturity of the sector in the US means the operational offering is typically more sophisticated. This is down to decades of experience, a trained talent pool to draw from and competition between large, well-established operators whose individual portfolios dwarf the total number of BTR homes in the UK.

The need to differentiate

As a result, multifamily operators across the pond have perfected their ability to deliver a premium product. In the UK, a strong pipeline of BTR homes suggests that operators here, too, may soon have to differentiate their offering from others on the market. Here, defining a brand, lifestyle curation and prioritising resident wellbeing will prove the differentiators. But the challenge will be greater with even the largest schemes barely matching 25% of the scale typical in the US.

Perhaps nowhere has the UK more scope to learn from the US here than in the use of end-to-end tech platforms. It’s not uncommon to hear of same-day maintenance services provided by on-site technicians in US schemes. The speed at which property managers can be notified of an issue is, of course, enabled through joined-up tech, including scheme-specific apps for residents.

But in the UK, a heavy supply-demand imbalance of rental homes – compounded by lengthy planning decisions and a lack of available land, both of which are less of an issue in the US – means residents will continue to prioritise cost. While BTR can usually command a premium, there is a ceiling on the amount people can afford to pay. This makes working with your operator on demographic and demand modelling as well as income affordability modelling key.

Joined-up tech

The UK’s lack of stabilised BTR portfolios also limits investment opportunities. This means a shift in focus to reducing operational expenditure will be particularly important to delivering healthy returns to investors while ensuring that unnecessary costs are not passed on to tenants.

Enter the opportunity to reduce human capital through tech. Joined-up tech can reduce staff on site as well as the amount of time required aggregating data that can be used to monitor operational expenditure and detect any discrepancies, thereby reducing gross-to-net leakage. Large onsite teams like those found in the US will be less important than identifying processes that can be streamlined through technology to free up staff resources where they are most needed, like the concierge services the sector is well known for.

While UK BTR tends to be associated with young, inner-city professionals living in smaller apartments – nearly two thirds of all BTR residents are aged 25 to 35, according to the BPF – it’s not uncommon to find households of all sizes and ages living in multifamily across the US. Perfect these operational strategies, and the UK’s BTR could similarly expand in appeal as other generations enter the rental market.

Although BTR should take inspiration from the US, importing a like-for-like model is unlikely to be successful. Growing competition means lessons must be learned about curating a premium product, but reducing operational expenditure will remain a greater priority than for our US counterparts. Operational partners offering tech-enabled, genuinely end-to-end solutions covering every aspect of an asset’s journey from underwriting to lease-up need to ensure UK BTR delivers a quality product to residents as well as high returns to investors.