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Mishcon Academy: Digital Sessions - The Future of Alternative Residential

Posted on 01 October 2020

Mishcon Academy: Digital Sessions are a series of online events, videos and podcasts looking at the biggest issues faced by businesses and individuals today.

In this session our panel explored the key opportunities and challenges for build to rent, student accommodation and senior living, including:  

  • changing tenant requirements
  • commercial realities of affordable housing and rent control
  • the perception of renting
  • the impact of technology and sustainability on building design and functionality

The panel, moderated by Mishcon's Co-Head of Alternative Residential Edward Hughes-Power, comprised: Jeannie Wong, Head of Student Accommodation and Senior Vice President of Portfolio Management at Brookfield; Stafford Lancaster, Executive Director at Delancey; and Dominic Grace, Head of London Residential Development at Savills.

This live session was held on 21 September 2020. All information was correct at time of recording.

Ed Hughes-Power

So, welcome everyone my name is Ed Hughes-Power and I’ll be your host today.  This is the first in our sector-focused series of Mishcon Academy Real Estate Digital Sessions which will look at particular sectors across the real estate sphere and how they are faring post-Covid.  Today, we’re discussing the future of Alternative Residential.  What we mean by that is student build-to-rent and senior living.  Student accommodation, now a recognised asset class, has developed very quickly from small beginnings.  A lot of people think build-to-rent will go the same way but perhaps much quicker.  It provides a professionalised viable alternative to home ownership for what often people call nowadays is Generation Rent.  Both sectors are appealing to a younger generation and they want cool well-designed buildings to help them through their student and young professional life.  Senior living on the other hand has some ground to make up but the concept’s a very sound one.  Older people selling their houses to free up capital to move into retirement schemes with all the amenities and services they need later in life.  So, we have plenty to talk about today, but I’m joined by three brilliant people who have all got some hopefully very interesting things to say.  So, first up we’ve got Jeannie Wong who is a Senior Vice-President in Brookfield Real Estate Group,  Stafford Lancaster, Executive Director at Delancey with particular responsibility for Delancey Clients Residential Investment and Educational Portfolio and then last but by very no means least, we’ve got Dominic Grace, the Head of London Residential Development at Savills.  Thank you all three of you for joining today.  It’s really appreciated.  We’ve got quite a bit to get through.  What we’re going to kick off with and it would be probably rude not to is obviously the obvious question, Covid-19.  What impact do you think the pandemic will have on investor confidence and tenant requirements for all three sectors. 

Dominic Grace

Yeah.  Well, in anticipation of this question I asked my colleagues in our Residential Capital Markets Team that cover all you know, investment sectors, alternatives and they say that as far as we can tell, I mean it’s a boring thing to say, early days yet but so far investor confidence seems to be very real and indeed if anything there’s a bit of a gravitational pull towards residential.  So, so far so good I think is the message. 

Ed Hughes-Power

Excellent.  And then Stafford, I mean from a BTR perspective, what’s your thoughts? I mean Get Living have got some fantastic schemes in London and the regions.  I mean, what do you think the sector’s going to do over the next few years?

Stafford Lancaster

Well, I think in the current situation I’ve been, like many people, at the coal face of raising money in the Covid environment and it’s not without it’s challenges whatever you’re doing but I think we’ve been successful in doing so, so, that is a very positive vote of confidence.  But of course you know, it’s not without challenges and I think the big challenge is around occupancy and maintaining levels of occupancy and I think there’ll be some good sensible approaches on pricing.  In a medium-term sense you know, I think it’s positive and as I’ve said, we’re seeing investors back that up with serious capital commitments. 

Ed Hughes-Power

No, that’s really good to see.  I mean from your perspective Jeannie on the obviously Brookfield and Student Roost and on the student side, how do you see things fairing?

Jeannie Wong

I think you know the pandemic has had a negative impact on the PDSA sector but truly I think that this will be short-lived and that, you know, investor confidence will revert back to pre-Covid levels.  I think you know, the crisis has actually really highlighted a level of resilience and strength of this asset class in particular.  I think I have a much more positive outlook in the UK, in the UK student housing market than I did at the start of this crisis because you know, we’ve seen our bookings today at Student Roost actually being at levels similar to where we were at last year and you know, our current projections that we’re forecasting suggest that we’ll be achieving occupancy levels in line with our historical range of around 90 plus percentage. 

Ed Hughes-Power

Obviously, it’s really interesting to see that you’ve got similar occupancy levels.  In terms of the sort of demographics of the students and in terms of international students in particular, have you noticed that being a drop-off and therefore that you’ve have more UK students signing up to your schemes?

Jeannie Wong

Previously, I think our customer demographics have been slightly weighted towards international demand who, it’s always been around the 55 versus 45 percent favour towards international students.  But this year you know it’s kind of switched around.  So, it’s 55 percent towards more of the domestic demand.  So, we have seen that shift but I think more so like, there is still, continues to be that you know, that international demand coming through.  Now, I think the point to really caveat is around whether or not that international demand is actually in-market versus are they still abroad? And I think that’s kind of where we’ve been really focused, at Student Roost, to bring in that domestic demand as well as that in-market international demand to help build the void of like the students who actually can’t come into the country. 

Ed Hughes-Power

Stafford, I mean on a BTR side have you in terms of things that you think are going to be road blocks to growth, is there anything in particular that you’d touch on in terms of a key challenge?

Stafford Lancaster

I think the perennial challenge is around affordability really.  I mean, you know, anybody operating on the scale we’re talking about here I think, which is large-scale institutional type investment has to be very bold in terms of the amount of stock it puts into the market place and you know what I’ve found is investors resonant towards a mid-market housing model.  They find that as a source of comfort around this resilience piece.  And of course, delivering with land cost, who knows what will happen with it but decent land tends to, I mean Dom will know more than me, decent land tends to hold its own, build costs don’t go down. 

Ed Hughes-Power

Dom, you’ve obviously in the past we’ve talked about co-living and you know, that piece of the jigsaw.  Do you see that as an interesting development at all in light of the pandemic?

Dominic Grace

Yeah I do actually.  Covid has definitely accelerated or highlighted things that perhaps have been around for a while and co-living’s been emerging.  The more the Government can do to sort of take the risks that have been washing around for a long time around planning and clarity about particularly Build-to-Rent where it’s appropriate, the more everyone can get educated and understand the sort of money-go-round of it all, the better. 

Ed Hughes-Power

What can we do to educate and you know, highlight the sector more? Is there anything we can do?

Stafford Lancaster

I think that there are some obvious sort of comments I often hear like, for example, renting housing is a transient community.  I think there’s a lot of education which I hope we can begin to build with real data as a number of you know, UK operators in our little UK world but at least we may be able to prove that it’s not quite the case.  There are genuine communities building around this housing and around these districts.  But I think in the end, ultimately it must be true in our housing crisis that all forms of tenure must be very welcome and I think that’s the over-arching theme.  It’s the necessity.  It’s the need.  It’s the infrastructural element of this that I think will win the day ultimately but long hard yards ahead as ever. 

Ed Hughes-Power

Moving on to another topic, brands.  What do we think about branding? Do we think it’s important to the schemes that you’re delivering?

Jeannie Wong

Prior to the pandemic happening I would say brand has probably not majorly impacted a student’s decision.  But I do think that Covid has actually changed the perception of this because students are actually starting to see and appreciate landlords who are much more flexible and you know, more willing to give them more of a break and really recognising the benefits of actually living in a PBSA operated dorm.  At Student Roost what we decided pretty quickly in the early stages of the virus was that we allowed you know, our students to leave their contract earlier in order to really protect our brand reputation and I think the gesture – the goodwill gesture – really definitely helped, you know, our brand loyalty I would say and really established a stronger presence in the student industry.  We even saw a higher percentage of new bookers, booking with us for this upcoming academic year because of this decision. 

Ed Hughes-Power

I mean Stafford, from a BTR perspective. branding? Should you brand or…?

Stafford Lancaster

I think personally, I would obviously say yes.  In terms of the way we’ve set up our business with Get Living.  I agree with Jeannie really.  I think your loyalties are hard won again it’s your reputation and of course if you can get that you know the best referral you’ll ever have is from an existing customer. 

Ed Hughes-Power

So, interestingly just off piste a little bit, how do we see sustainability affecting the design of your buildings in the future?

Dominic Grace

Well, obviously it’s mightily topical right now.  Sadly, surveys that have been done over the last year or two of you know, tenants asking them how much they value the sustainability side, have issued or delivered results which don’t encourage developers to really focus a lot on that.  It’s very interesting because of course the money increasingly getting behind, let’s say, BTR is massively committed to all those ESG boxes needing to be ticked.  But right now the end user isn’t driving it. 

Stafford Lancaster

I agree with Dom.  I think the capital piece of this is absolutely clear.  There’s an essential requirement on deployment of capital in a responsible way.  I think maybe without being overly idealistic about it I do think if we can get the supply side moving I think we will just begin to see more and more sustainable homes delivered because that’s just the requirement of the capital and of course the regulations and the planning and maybe then the consumer will catch up as well. 

Ed Hughes-Power

Just clutching on affordable housing, in the London plan there’s a 35 percent requirement.  Can you make a scheme viable in London with that sort of you know, high threshold?

Stafford Lancaster

It’s a very difficult conversation I think, you know, even if you, you know the view is, ‘Oh, you’ve overpaid for the land’ or ‘You’re getting…’ You just have to deliver 35 and just deal with it.  We’re very committed to London living rent and other forms of discounted rent in our rental housing business.  There’s obviously shared equity models as well that can fit. fit the bill to an extent.  I think the danger though in housing supply is that it does actually flick the switch quite quickly to other land uses.  So, when you look in the office markets there’s some competing challenges in all of that.  But I think in the end we have to accept that for the foreseeable that 35 or more is where it’s at. 

Ed Hughes-Power

Rent controls Dom.  What’s your thoughts on that? Did that sound right, or is he wrong?

Dominic Grace

Well, he’s… history might say he’s wrong because you just spook the money and then the money doesn’t come in that you need to make it happen etcetera.  Again, as Stafford said you know, it’s a tricky one this.  Personally, I’m a sort of let the market dictate man and I think the more supply you get, it might have a slightly suppressing impact on rents anyway and it has become inevitably rather politicised this and well you know, we’re brewing up for a mayoral election in May and Covid has obviously thrown up all sorts of issues and the Government very fast out of the blocks weren’t they to protect tenants and what have you and I guess full marks to them for that initiative. 

Ed Hughes-Power

Sort of doing your best mystic meg impression, in five years’ time – post-Brexit and post-pandemic we hope – how will each sector fare do we think?

Dominic Grace

I suppose a general one would be a hope that what’s regarded as alternatives are just regarded as the norm around everything, around tenures, price points, the way things get built etcetera.  I think it will be interesting to see you know, brands, you mentioned brands earlier.  One would hope that five years on for, say, Get Living, how much will that you know, how much awareness will there be for brands like that? Be it for Nest or other brands that Brookfield might get involved in and I’m going to watch that with real interest. 

Ed Hughes-Power

Jeannie, five years’ time? What do you think?

Jeannie Wong

You know, honestly I think the currently the valuation will likely be a consequence of Brexit and you know, I think this will be a key mechanism for the UK property sector.  I think from a rental perspective the depreciation of the sterling will hopefully make living and tuition fees much more attractive and then from a capital growth perspective I think, you know, in a PBSA market where the majority of investors are actually foreign investors, I think the favourable FX rate will hopefully increase the demand for even more foreign investment to come to the UK which will help keep the real sterling price stable and may even drive it upwards. 

Ed Hughes-Power

Thank you that’s really interesting to know.  Stafford, Build to rent? Get Living? Where do you think you’ll be in five years’ time?

Stafford Lancaster

As I was saying earlier, I think the medium-term prospects are reasonably fair not without headwinds like anything but I think macro is positive particularly around housing in even supply provided you can get that affordable sweet spot moving.  You know, these are cottage industries still really and I think we’ll start to see big consolidators created.  Could be a Get Living, could be somebody else who actually become big housing investment companies across tenures, including I would think student and co-living and other forms of product.  Sitting alongside registered providers because you’re already a major provider of housing in the UK and of course the house-building business is going to carry on with that area.  I also hope to see a proper secondary market as well you know, in a sense of just activity with residential investments, moving around, changes hands very you know, a good investment space generally.  A liquid market. 

Ed Hughes-Power

Yeah.  Because we’ve seen that obviously in the student sense but we haven’t seen it so much in build-to-rent so that will be interesting over the next five years.  Which obviously, one of the key pieces of that jigsaw will be valuations and banking finance and making sure that all those things are there to make that happen.  I think, I think that feels like a really good place to finish our discussion.  So, that just leaves me with a very, very big thank you to all three of our panellists; to Dominic, Stafford and Jeannie.  Some really interesting thoughts today, so thank you very much for that.  Thanks again and see you soon. 

The Mishcon Academy Digital Sessions.  To access advice for businesses that is regularly updated please visit Mishcon.com.

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