It’s been more than two months since lockdown restrictions were eased on the property sector and the industry is learning how to operate successfully in a recession under the new coronavirus guidelines. We sat down with Jo Green, Home Made’s Head of Business Development and resident BtR expert, to get her view on the current state-of-play for the sector and what scheme operators can do to succeed in trying circumstances.
The following conversation has been edited and condensed for clarity.
Please can you provide us with a general overview of London’s residential lettings market from a BtR perspective?
I’m sure most people reading this will have seen the reports about declining rental prices in London published in the national press this past week. While the nationwide market is fairly stagnant in general, London has been particularly hard hit by the downturn (with central boroughs being the worst affected). There are several factors at work here.
Firstly, many Londoners are fleeing the city - either by choice as the emergence of flexible working removes the requirement for many to be physically present in the city, or because they have been forced to relocate due to unemployment. Meanwhile, many of those that are staying in the city are opting to either renew their current tenancies (often at discounted rates) or are looking to downsize to reduce their monthly spending commitments as incomes take a hit. Others are choosing to focus their search on a narrower slice of the market as they look for properties more suited to their newly prioritised needs, e.g access to outdoor space.
Secondly, London’s residential market is uniquely impacted by the collapse of the tourism industry due to the volume of short-let property available in the city. Many Airbnb hosts have migrated their stock to the long-let market at below market value as they desperately seek to recover costs lost due to the pandemic. According to data from Rightmove published in The Guardian, long-let housing stock is up a remarkable 41% in central London.
The concurrent sharp decline in demand and rise in available stock has created an incredibly competitive market for landlords. As a sector, BtR faces a unique challenge as some of its largest engines of demand, corporate relocations and the international student population, have completely stalled.
Additionally, schemes often do not have the same room for manoeuvre as private landlords do when it comes to pricing. Individual landlords are highly reactive to changes in the market and quick to reduce pricing during slumps. BtR schemes, with their higher fixed operating costs, large number of stakeholders and decision-makers, and lifetime ERVs to consider don’t have the same flexibility. This further widens the price gap between BtR stock and the rest of the market.
For those operators able to be responsive we have seen unprecedented levels of demand with occupancy rates increasing rapidly. For those less able to react, the market is fiercely competitive.
How does the sector need to adapt to meet the challenges it faces in the era of COVID-19?
Marketing strategies will need to be reevaluated. It’s a renters’ market and competition is fierce. Reaching as many renters as possible is key and then moving them quickly through the customer journey. Any delays in viewings or the offer process will result in them securing somewhere else in the meantime. It isn’t sufficient to list units on the online property portals and focus marketing efforts on traditional forms of advertising in the local area as there simply aren’t enough residents to go around - schemes need to source extra applicants by redirecting demand from other properties to additional vacant units.
At Home Made, cross-selling is our single most effective tool at expanding the reach of a property. We operate in zones 1-6 from a single central location and have a diverse selection of stock from both institutional and individual landlords. With demand generated on a city-wide basis and thousands of enquiries weekly, our Sales team can gain additional traction on every property by pitching it to relevant applicants not just from the local area but across London.
We find that renters are quite flexible when it comes to which neighbourhood they live in as long as the property itself is the right fit - particularly now that remote working is becoming the norm. By cross-selling, we capitalise on every enquiry by actively creating further demand (at no additional cost) and booking extra viewings instead of waiting passively for renters to get in touch with us. During the normal course of business this is an extremely effective method of turbocharging a lease-up cycle, but in a slow market it is near-impossible to find enough renters to fill every unit in a scheme without a sound cross-selling strategy.
The second key to success is the speed of the customer journey. Every minute counts when renters have this much choice - if you take too long to respond to an enquiry or an offer, that person will find somewhere else. Accommodating initial and follow-up viewings at short notice is not only great for your customer’s experience, but it can also be the difference between them choosing your property or another home.
Schemes should look to open multiple channels of enquiry and use flexible staffing solutions so that they have the tools and the team required to provide an agile response to every enquiry. In our office, we have a dedicated, highly trained team who focus solely on responding as soon as possible to the enquiries we receive through multiple channels. This allows us to keep more of our Sales Associates out on the road completing property viewings.
On the topic of viewings - how are virtual viewings transforming the process of marketing a property? You mention that it is essential to facilitate viewings at short notice if a scheme doesn’t want to miss out- is this something the rise of virtual viewings can assist with?
Virtual viewings are an excellent marketing tool. Being a prop-tech company that serves thousands of renters relocating to London from overseas, we had been working on virtual viewings as a digital marketing solution for some time and were well ahead of the curve when it came to high-quality video walkthroughs prior to lockdown. We were able to remain fully operational throughout March and April and this absolutely would not have been possible without them. They also make it easier to cross-sell multiple locations as we can show the applicant a selection of other potentially suitable properties without the need for them to travel out of their way to a property they hadn’t enquired on.
However, the sector must resist the temptation to view virtual walkthroughs as a panacea. Virtual walkthroughs are great, but they are by no means a replacement for high-quality in-person viewings. There are many prematurely touting the end of the physical viewing and falling into the trap laid by the false economy of digital solutions. Yes, it is possible to complete far more virtual walkthroughs in the time it takes to complete viewings in person but the conversion rate is significantly lower.
While we still offer virtual walkthroughs on every property in the first instance, we have seen a significant and sustained weekly increase in demand for physical viewings and a far better conversion rate when applicants view in person. Renters use virtual viewings to narrow down their shortlist of properties before arranging physical viewings on the properties where they have the strongest interest. When used well, video viewings increase the likelihood of securing an offer on a physical viewing by effectively nurturing leads further through the sales funnel, but you will struggle to fill a building with videos alone.
An old axiom holds that there is opportunity in every crisis - do you see any opportunities for the BtR sector in the immediate future?
The ongoing pandemic is a devastating, once-in-a-lifetime event and it’s hard to comprehend the scale of human loss and economic damage it has caused. Despite these awful circumstances, the BtR product offer is in so many ways perfectly suited to current renters’ newly identified needs. Access to outdoor space, super fast broadband, work from home space and pet-friendly policies have been sector USPs for years and their value has now increased significantly.
COVID has created this strange paradox where people are still uneasy when it comes to venturing out but more desperate for human contact than ever. This is the perfect opportunity for schemes to provide this community interaction safely so you should make use of your outdoor areas and get creative with COVID-secure community events that keep people connected.
There is an opportunity to recover some of the demand lost while corporate relocations remain on pause and international students stay home by promoting the lifestyle USPs offered by your scheme. There is enormous potential for effective messaging directly on these themes, leveraging social media channels and content marketing to boost awareness without breaking the budget.
Additionally, flexible contracts are very attractive to renters struggling with increased uncertainty about the future. While BtR schemes cannot be as reactive in terms of pricing as individual landlords, they can offer far more flexibility when it comes to the conditions of the tenancy agreement and you should use this to your advantage.
There’s also a big opportunity for developers operating schemes in suburban outskirt locations. Even before COVID, over 52% of renters were relocating from one area of the city to a completely new one. Post-COVID, this is now even more the case as flexible working means renters are happier to relocate from the more expensive central locations with smaller living quarters and limited access to outside and/or green space. Schemes that provide modern, high-specification housing with excellent on-site amenities at a lower cost should prove very competitive
Do you have any other general insights you would like to share?
I’ve written before about the comparisons to be drawn between the current recession and the financial crash in 2008, and noted that the US multifamily sector enjoyed one of the fastest recoveries in the property industry. Although not directly comparable as events, there are many reasons to be hopeful that the same will be true for BtR in the UK. As outlined above, the sector’s USPs for renters are more valuable than ever and the opportunity to secure new, long term residents is high.
As far as further advice, I would say that investors/operators need to train a keen eye on their customer acquisition costs (CAC). It’s a competitive market and your CAC will rise, so it’s essential to know the value proposition of every channel used to find renters. If you can keep your CAC down, you will have more breathing room to adjust pricing as a last resort if it becomes necessary to keep up with reactive private landlords.
We know from our in-house research that many high street agents still aren’t picking up the phone or processing incoming enquiries more than two months after restrictions were eased for our industry. This won’t cut it if you’re looking to lease-up and schemes need to thoroughly audit the performance of any partners they instruct to market a property.
Branch-model agencies also lack the means and the initiative required to properly cross-sell your development to renters across London. Each branch has its own targets to meet and demand becomes fragmented across the agency network - there is so much wasted potential here as local branches look to boost their own figures rather than increase the number of enquiries for your units.
At Home Made, we cover the entire city from one central location and our low fixed fees are entirely contingent upon successfully letting your units. There is no misalignment of incentives and our Sales and Growth teams will create a bespoke, extensive, multi-channel marketing strategy to proactively drive demand for your scheme.
We are, as always, here to help and if you want to speak to us about how we can support the lease-up of your scheme get in touch with us today.