Residential asset managers can perhaps be forgiven a touch of schadenfreude as they watch their counterparts in other asset classes grapple with the need for a more detail-oriented, operational approach in the post-pandemic property market.
“For once, residential is probably ahead of the curve,” says Tracey Hartley MRICS, head of residential at the Howard de Walden Estate, which manages a 37-hectare central London property portfolio. “There used to be a real dichotomy in asset management. You were either in the commercial world of 20-year FRI (full repairing and insurance) leases, or in residential where turnover is much more rapid, and you acquire far more customers in a short period of time, so you have to constantly keep on top of what they want. Now we see a lot of crossover between the asset classes, with demand for flexibility, shorter lease terms and more of a serviced offering.”
Understanding residents’ experience of their living space as they carry out everyday activities like emptying the rubbish or adjusting the settings on energy-efficient appliances is vital to keeping them satisfied, argues Claire Solon FRICS, managing director at Greystar Ireland, a global rented property operator. “There is so much rapid change in our market that if we are not listening to what people actually want, be they commercial or residential tenants, we are going to get left behind,” she says.
Identifying what residents, and potential residents, want is not necessarily a simple task. In the US, where the professionally managed ‘multifamily’ rented residential apartment market is more mature than in most other countries, landlords routinely offer very high levels of amenity: concierge services, gyms, sophisticated shared spaces with facilities like recording studios and crafts workshops, ‘grab and go’ food kiosks. The trend has led to an amenity war breaking out among multifamily apartment providers. But opinion is divided on to what degree engaging in that conflict is an effective or desirable strategy for filling space quickly and minimising ‘void periods’ when units lie empty, a crucial consideration for asset managers of rented apartments.
“A lot of the amenity space provided in build-to-rent buildings is not necessarily going to be a profit centre. What it does is make your building much more attractive to incoming tenants,” suggests Alastair Carmichael MRICS, investment director at investor and lender HB Titan. “Therefore, you can minimise voids, and for a lot of investors voids are a crucial consideration. There are costs you have to carry, and when the space is not generating income, it is impacting your overall return.”
Hartley is sceptical of the value of entering into the amenity arms-race, however. “Customer expectations are quite low. People want a safe home in the right location at a reasonable price, where, when something breaks, the landlord fixes it efficiently. How we look after our customer is the real source of income. We see from the US that by constantly building shinier properties and offering all kinds of incentives landlords lease up really quickly, but then lose those tenants when the next building opens. It is a self-defeating strategy, and from an environmental perspective regularly ripping out fixings to replace them with the latest fashion is wildly irresponsible.”
Solon notes that it is sometimes difficult to discern a rental premium for high-amenity space in locations like Dublin and London because they are currently undersupplied with purpose-built rented apartments, and consumers have little choice. However, she contends that the value of such space will prove to be resilient as those markets mature. “We want to set ourselves apart in the long term with really good-quality product because that should be a defensive position,” she says.
Data analytics play an increasingly pivotal role in managing large and diverse portfolios of residential leases, with commercial software platforms allowing landlords to dissect every aspect of performance. “The larger the portfolio, the larger the quantity of data, and the more relevant it becomes. But you still need to make it useful so that you can draw conclusions from it,” says Solon.
In more transparent and mature markets like the US, analytics platforms enable dynamic pricing, whereby rents alter to reflect conditions of relative plenty or scarcity. Meanwhile chatbots have been used with increasing frequency by residential landlords during the pandemic to minimise interpersonal contact while answering tenant queries, and phone apps for logging maintenance requests and receiving updates on progress have become increasingly common. “Generally, the property sector has been a laggard at technology, says Hartley. “But some of the build-to-rent operators have really embraced the possibilities.”
of US households rent their homes, which works out at roughly 109m Americans living in rented housing