Property consultancy and real estate service provider Cushman & Wakefield has released insights from its Q2 2024 Build to Rent update. The investor survey revealed that amenity lite urban Build to Rent schemes with mid-market rents were investors’ top pick for preferred asset type, with 53% voting it as first choice and 25% voting it as second choice.
The amenity lite Build to Rent asset class has become increasingly attractive to investors, yet this isn’t following the ‘amenities arms race’ that has been found in the US. According to the data, US renters can afford to pay a premium for highly amenitised schemes. In the US in May 2024, households signing a new lease spent an average of 22.1% of their income on rent.
This is much lower than the UK average of 28.2%. These ratios vary according to location, but as a whole, US renters spend less of their income on rent than those in the UK. Utilising research of the US multifamily sector, Cushman & Wakefield explore how retention rates in different grade multifamily schemes vary. It discovered that retention rates in ‘Class B and C’ are higher.
Class A – the prime end of the market which has the lowest retention rate, averaging 51% in H1 2024. Lower retention rates in prime schemes can be explained through more footloose tenants, those who are more likely to become first time buyers, alongside loosing tenants to new competing schemes (often enticed through incentives).
Class B – schemes often have great fundamentals but are generally older properties that are more affordable to the average American. These properties are routinely upgraded to Class A quality, but often offer slightly less expensive rents. Class B schemes had an average retention rate of 54% in H1 2024.
Class C – schemes are typically older, more affordable buildings, with few amenities. They are in short supply in the US, and with Class C offering some of the lowest rents, tenants have limited choices to move if they don’t want to see their rent increase. Class C has the highest retention rate – 60% in H1 2024.
Although the US data isn’t a direct comparison to amenity lite Build to Rent offerings, it helps demonstrate the fact that the more affordable lower spec schemes have higher retention rates, in turn improving operational costs. As new supply has been entering the US market, it has been cooling off rental growth, and at the same time wage growth has continued to increase.
Cushman & Wakefield believe that this is a trend the UK needs to adopt, with an increase in the delivery of new rental homes to improve affordability. An amenity lite Build to Rent offering would cater towards a much greater UK renter demand pool.
In the UK, 82% of renters earn £39k or less. The most popular income band for private renters in the UK is £20k to £29k, accounting for 24% of private renters. Delivering a more ‘affordable’ amenity lite product would widen investors target audience.
