Paul Stockwell

The UK BTR sector owes much of its resilience during pandemic to how it operates

The coronavirus pandemic and the economic lockdown has led those of us involved in real estate to reappraise much of what we thought we knew about investment and property.

All investments involve weighing up potential scenarios and risks – but a full shutdown of the economy is not a situation you can easily imagine or plan for.

The impact of the pandemic has varied greatly across the real estate industry. There has been a damaging effect on the commercial property sector, but, so far, the residential market appears to have rebounded strongly, with prices rising and transactions increasing.
The private rental sector falls somewhere in the middle, with rents reported to be falling in London, but growing elsewhere.
In the UK, Gatehouse Bank was a pioneer of the build-to-rent (BTR) market, entering the sector in 2014. We manage two portfolios comprising around 1,600 units across 23 sites. In addition, we were able to add a scheme to our portfolio during lockdown. To evaluate how the sector has fared during the pandemic so far, we have launched a report entitled Performance in a Pandemic.
Early signs indicate that, as an asset class, BTR has performed well during this period.
The shortage of home building in recent decades has meant that every BTR unit in the UK — of which there are 167,853 — plays a pivotal role in providing much-needed housing.
This demand ensured that, like many others, our schemes were almost fully let in 2019, meaning we entered the pandemic in a strong position.
When lockdown first hit, there were short-term effects related to delays and defaults in rental payments owing to many tenants suffering economic hardship. However, government support, for example via the furlough scheme, largely mitigated this by underpinning some tenants’ income, and rental collection is at 98%. For comparison, there are reports that claim rental collection rates across the commercial real estate asset class have been at just under 65% since lockdown.
BTR arrears peaked at 8% in April but had reduced to 2% in July. Careful management and helping tenants through payment plans has brought arrears in line with long-run averages, with only a fraction written off as bad debt.
Through a tenant survey, we found that, in the majority of households, there were two or more people responsible for paying the rent, so even if one person lost their job, the other tenant would often be able to cover it until income support came through or the unemployed tenant found new work. We also found that the self-employed were most likely to go into arrears during lockdown.
Across the BTR schemes we manage, the average income-to-rent coverage ratio is around five times, and this high household income to rental obligation has reduced the likelihood of tenants defaulting on rents. Gatehouse is increasing occupancy rates as more households look to the rental market.
The big unknown is how the withdrawal of government support and potential rising unemployment levels will impact rents and occupancy levels in the autumn and winter.
The BTR sector owes much of its resilience throughout the lockdown, and subsequently, to how it operates, as it enables the owner to proactively manage the profit and loss like a live business.
The art to maintaining control of your income stream involves acting flexibly and working hard on the operational detail. Our experience shows you can collect near total rates of income even during a pandemic — and this underlines just how durable the BTR sector is as an investment.

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