- The Covid pandemic and associated recession continue to impact the residential rental market.
- The expected end of furlough in October is projected to drive tectonic shifts in the rental economy, despite a better-than-expected summer period.
- BtR Operators who prepare in advance to the end of furlough will be better placed to mitigate the inevitable impact of the recession.
- Home Made is the partner of choice of the leading BtR owners/operators, helping lease up thousands of units across London and the South-East.
Few would disagree that it has been a difficult year for the residential lettings sector. With the market effectively frozen for several weeks in the spring due to lockdown, a precipitous decline in renter demand followed.
Although London’s renting residents are making enquiries once more, and demand is unquestionably there, BtR operators are facing a very different landscape to the one in play pre-COVID. In stark contrast to the seemingly steady flow of good news commentary we offer a candid assessment of what's happening in the market now and, perhaps more worryingly, what’s around the corner.
There are definitely stormy skies ahead that BtR operators need to be prepared for as the summer peak and post-lockdown spike subside and the furlough scheme comes to an end.
The post-lockdown rental market
Firstly, there has been a dramatic increase in the supply of rental housing stock due to the implosion of the short let market. Thousands of AirBnB properties were brought back onto the long-let market netting a >40% increase in available stock against the same period last year with most of these in Central London. Renters not only have more choice than before lockdown, but many of these properties are owned by private landlords who are often able to be much more reactive on achieved rents to secure the let. Where BtR operators have been unable to adjust their pricing strategy so drastically, the gap between the BtR premium and market rents has widened - inevitably impacting occupancy rates and ERV’s.
A further challenge, and not one that looks set to improve any time soon, is what has been described as a 'mass exodus' out of the city. Analysis carried out by the University of Oxford in April indicates that nearly 250,000 wealthy Londoners left the city for rural locations in the east and southeast of England prior to lockdown. Additionally, many young workers have also left the capital either directly due to job losses or because the option of working from home allowed them to return to family.
With the national experiment in remote working having been deemed a success, and further job losses on the horizon, only some of those who escaped to the country for lockdown have immediate plans to return. The Escape the City careers advisory service reported that the number of city workers looking for jobs outside of London has more than doubled year-on-year compared with the same period in 2019. Of course, this might be a temporary product of the financial or existential malaise many find themselves in during these trying times, or of concerns about the epidemiological risks posed by urban living. Nevertheless, we are unlikely to see the trend reversing so long as the pandemic continues to rage.
For those who do remain inside the M25, as we predicted in our previous piece, there has been a marked shift in priorities following their experience during lockdown. After spending most of April and May trapped in densely populated central neighbourhoods and cramped living conditions, many young Londoners are now seeking homes in suburban locations with more green space and lower rents. (This is illustrated by our own recent research on tenant migration, which we reveal in more detail below.)
‘Renting in London feels different post-lockdown.’
The inevitable outcome of all these compounding factors is that competition for renters, particularly within the BtR space, is fierce.
Thankfully, restrictions lifted as we entered the summer and the pent up demand that had built up during lockdown was released just as we entered peak season. This surge in activity meant that those schemes that were able to react quickly to market conditions, and adopt the right strategies to reach a significant volume of renters, saw any initial hit in occupancy return to stabilised levels.
So, despite the ongoing pandemic, following a reasonably solid summer surely one could be forgiven for thinking that the worst is over? Sadly, it is more likely just the calm before the storm. As the end of the government’s job retention scheme (JRS) approaches, figures published just yesterday by the ONS reveal that redundancies are already rising at the fastest rate since 2009. Young workers in particular are being badly battered by harsh economic headwinds. 730,000 people have already lost their jobs and this figure is expected to rise sharply, with the total numbers only likely to be apparent at the end of Q4 this year.
The impact on renter demand will be significant
Now is the winter of our discontent... Just last week, it was reported that approximately 1.5 million private renters were furloughed and it is predicted that up to 20% of workers enrolled on the JRS could be made redundant when the scheme ends at the end of October. London is particularly vulnerable. It has the fourth highest rate of furloughed employees in the country (~30%), with some boroughs including Newham, Hounslow, Haringey and Brent higher still at 35% or more. Should a significant number of these workers find themselves unemployed as the JRS winds down, the impact will be felt widely across the capital’s private rented sector.
BtR schemes could well see occupancy rates decline once again and those located in areas with high numbers of job seekers may struggle to find new residents able to pay full price for their properties. Furthermore, where schemes might previously have had the option to turn to the short-let market as an additional revenue stream, the collapse of the international tourism industry means this is no longer a viable stopgap. It is a similar story with the international student population. Although there has been some limited revival of interest from overseas students in line with the start of the academic term, enquiries are nowhere near their usual level. This usually reliable engine of BtR renter demand is likely to remain on pause for at least the duration of the COVID crisis and possibly longer.
To put it bluntly:
- It is about to become much harder to lease up your scheme due to significant downwards pressure on demand, particularly in central locations and/or at higher price points.
- There is an increased likelihood of existing residents falling into arrears or terminating contracts early due to job losses.
With an alarming increase in the number of daily COVID cases being reported, now is the time to prepare for the end of the JRS and begin formulating plans to minimise the potential impact on BtR schemes both in steady state and in mid or initial lease up phases.
Of course, Home Made are here to help!
The market impacts of COVID have brought the need for more innovative, more cost efficient and more effective solutions to drive lease up of BtR schemes into much sharper focus.
Home Made has been able to support our growing BtR client base with exactly these solutions. The results we have been able to deliver have seen our client mandates increase from appointments on one site initially to multiple sites and exclusive partnerships today.
“Home Made is not just a provider to us. They are a true partner whom we rely on to meet our financial and operational targets, enabling us to grow our residential portfolio by 200% in 2020 and achieve 37% yield above the projected ERVs.” Tomer Bercoviz, CEO, Vonder Europe
What do we do?
The Home Made model drives a high volume of enquiries from our portfolio of marketed properties to BtR sites across the whole of London. Our fully digitised customer journey has been designed to maximise the number of enquiries converted into viewings and ultimately viewings into quality tenancies.
“The team are highly professional and extremely good at what they do, driving volumes of enquiries and securing tenancies at a level no other lettings provider has been able to do.” Jane Reeves, GM, Get Living, Elephant Central
How do we do it?
Home Made have the widest coverage of any single-branch lettings solution in London.
We work with thousands of private landlords, as well as multiple property management companies and BtR operators right across the capital.
Prior to COVID, Home Made research had already revealed that renter migration patterns were changing, with over 50% of renters open to completely new locations. Having revisited the question in the wake of lockdown, unsurprisingly the data showed that this number has now increased by a further 12%! Our analysis of 1,600+ renters now shows that 64% of renters are relocating to a totally different area within Greater London when moving into a new property. Similarly, the average travel time from the location of origin to the listed property increased from 35 mins (08/2019) to 44 mins.
Through a combination of human intelligence and very clever tech, we are able to show renters a much wider range of properties from outside their original search area but that are still highly relevant to them based upon their established wants and needs.
With the challenges the current market presents, BtR operators across the capital lease up cannot be achieved by relying on organic demand levels alone.
Along with our unique ability to cross sell, the Home Made model proactively generates additional enquiries by utilising modern marketing methods across 40+ cross-platform digital channels. Over 60% of our enquiries are sourced from outside the traditional property portals and clients who have engaged us to manage lease up from pre-PC have reached stabilisation 25% quicker.
In short, Home Made offers a unique solution in exceptionally challenging times - saving costs, driving enquiries at volume, and securing high quality residents.
To understand how we can support the lease up of your scheme and the impact we can have, get in touch with Jo Green for a bespoke proposal.
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.