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12/12/2016

Report: Sacrificing apartments for multiple-use amenities can be ‘risky’ for developers

Words: Laura Edgar

The inclusion of multiple amenities in lieu of apartments in new build-to-rent schemes can have a ‘significant impact’ on the commercial performance of a building.

The Rented Space Race: The Commercial Impact Of Amenity Spaces On Build To Rent Schemes In The UK by real estate and construction consultancy Cast suggests that up to a 10 per cent premium can be required for developers to achieve a yield neutral position.

However, the consultancy has warned that a lack of data on customer demand for amenity spaces in developments “could create investment risk if the commercial impact including long-term management costs is not adequately considered”.

The build to rent sector in Britain is still in its infancy, says Cast, so the value gained financially and in customer satisfaction is not yet fully understood.

But, with construction costs largely consistent across the UK and rental prices varying in different regions, “the cost incurred by operators for including shared facilities can be relatively greater outside London”.

If a developer includes multiple amenities, such as a gym, private dining room, cinema room and a resident’s lounge, the scheme will lose eight apartments. This, says the report, would require a rent increase of more than 10 per cent to achieve a yield-neutral position.

Michelle Hannah, associate director at Cast, said: “Developers looking to incorporate amenities in the UK need to be sure about the costs and potential rental losses involved, the premiums they would need to charge on top of rent, and the ongoing maintenance costs.”

She said there is a “substantial risk” involved with including non-direct revenue generating services within schemes, particularly when it’s unknown whether there is sufficient demand in the market to make shared spaces a viable investment asset.

“There is no ‘one-size-fits-all’ solution; developers will need to ensure that the level of amenity matches their target customer profile.”

Ian Fletcher, director of real estate policy at the British Property Federation, which supports the report, added: “Providers understandably want to differentiate their buildings from the standard buy-to-let offer and deliver a better experience for customers.

"However, this must be done in a cost-effective way if it is to best meet the needs of investors, tenants and local planners.”

The report analyses data from London and Manchester.

The Rented Space Race can be downloaded from the Cast website.

Image credit | iStock

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