The idea that ‘customer is king’ affects all industries, and has grown exponentially in importance for businesses and investors in recent years.
The Covid-19 pandemic is having specific and significant impacts on the private rental sector through customer wants and needs.
Some of these are existing trends and changes, exaggerated by circumstance. Others are new. All must be considered by PRS investors. Two key areas of consumer need are relevant:
• What customers want, and are willing to pay for; and
• Consumer confidence.
The PRS market context
Before sharing my thoughts on how customer wants, needs and confidence are changing what works in the PRS in a post-Covid world, it is important to set the context.
National and international investors are attracted to the sector, as UK residential property investment has for many years offered compelling stability, growth, yield and a hedge against inflation.
The UK PRS is unique, partly due to our cultural obsession with home ownership that has come to dominate the wider housing market.
- Tenant needs are changing post-Covid
- People care more about having a garden and space to work in
- Economic confidence will be a driver of change
The sector has doubled in size in the 20 years from 2001, from 10.2 per cent to 20.3 per cent of households, according to Savills.
Since 1997, and the widespread take-up of Buy-to-Let mortgages, the make up of investors has diversified dramatically.
Savills also found that 94 per cent of the PRS was owned by individuals in 2018, with the vast majority of landlords owning four or fewer properties, and only 1 per cent owning more than 10 different properties in 2010.
The diversity of ownership has fallen since the Montague Review 2012 and a raft of regulatory changes such as mortgage interest relief via section 24.
The make-up of investors in the PRS is important because:
• It profoundly affects what the PRS actually looks like, and how it responds to Covid-19.
• In many ways, investors are considered as consumers too: you only need to watch Homes Under the Hammer, or read any major news publication, to realise how many ordinary people feel they can and should get involved with UK residential property investment.
My own experience since studying land economy has predominantly been with PRS assets worth less than £5m, which make up more than 90 per cent of the £1.5tn sector.
I typically work with high-net-worth investors who want the benefits of PRS investment, without the hassle. During lockdown, I published a book on what works and what does not in this complex market.
The main message was that what works must be increasingly professional and efficient, while allowing the investor to be hands off.
So, how will Covid-19 affect customer appetites in PRS investment and the wider property market?
What consumers (tenants) want and are willing to pay for relates to buildings, service and confidence. Surveys suggest that people are thinking differently about their housing choices.
Perhaps unsurprisingly, people care more about having a garden, more indoor space, the right neighbours and local community, and space to work from home. It seems clear that ‘walk to work’ locations and layouts that facilitate working from home will be increasingly important.