Build-to-rent could become healthiest post-COVID property sector
Build-to-rent could become healthiest post-COVID property sector
| 23 May 2020
Build-to-rent less impacted by cyclical downturns than other property types
As COVID-19 wreaks havoc across the globe, build-to-rent is emerging as an asset class that is likely to recover quicker than other property types, says CBRE’s newly appointed Director, Structured Transactions and Advisory, Natasha Sarkar.
Sarkar, who leads CBRE’s New Zealand Build-To-Rent Valuation and Strategic Advisory capability, complementing the agency’s market-leading research in this space, says that in the US build-to-rent was the first sector to recover from the 2008 recession, and then achieved superior returns through the recovery and expansion phases. This could re-occur as economies slowly begin to open up after lockdowns.
Sarkar says: “In a post-COVID world build-to-rent is worth watching, as it is as an opportunity to diversify investment portfolios, especially as it is an asset class that has proven more resilient in the past than others.
“Though post-COVID results and their impact aren’t yet clear, we would assume that the strong fundamental growth within the build-to-rent sector in Australia and further afield will have remained strong throughout the pandemic and will help underpin and progress the interest in this sector.”
When asked about how she views the New Zealand market and the opportunities, Sarkar says that the market needs scale, which translates to build-to-rent developments of 100 units or more. “We’re starting to see circa 30 to 50-unit schemes; however, this scale doesn’t yet justify the service and amenity offering we need to move from traditional private rented stock to pure build-to-rent. Greater scale, perhaps even from multiple sites, will result in amenity and service driven schemes which is what we are after to make build-to-rent appeal to customers. Scale with a defined service/amenity offering and strong equity backing, at least early on, is the current hurdle.
“High land values and build costs are constraints to most development in New Zealand cities, but accessibility to public transport and the ideology of homeownership as being the only long-term housing option for people, is also constraining us. Additionally, with the continuation of record low mortgage rates, the reality of a monthly mortgage payment closer to the cost of monthly rent, isn’t helping the overall rental story.
For institutional investors however, there is a strong attraction to lock in stable returns from build-to-rent in the uncertain global environment, she adds. “People need somewhere to live. The constraints in New Zealand I believe are outweighed by a strong supply deficit of quality rental product, build-to-rent’s previous robustness and its track record in the US as the most resilient property sector to recessions.”
The appointment of Sarkar into the role of Director, Structured Transactions and Advisory is part of CBRE’s concerted focus on the build-to-rent sector, leveraging her international experience and CBRE’s global expertise.
Sarkar has been based in the UK for the past three years undertaking valuations and providing consultancy advice on large-scale residential-led developments and investments in London and the UK’s South East.
This experience has given her extensive knowledge about the opportunities and feasibility of build-to-rent – particularly as an emerging asset class. Additionally, she has direct New Zealand experience, having worked with CBRE New Zealand in the Valuations business for five years prior to heading to the UK.
Andrew Stringer, Senior Managing Director of CBRE New Zealand said: “Build-to-rent is moving from its infancy to capture real interest within the New Zealand market, as it provides a significant opportunity to investors and developers, and it fulfils a critical need to increase rental housing within our main cities.”
“Over the past two years, CBRE has been the frontrunner in build-to-rent thought leadership in New Zealand, identifying the opportunity that institutional investment into this market presents. Natasha’s appointment underscores our confidence and commitment to build-to-rent in New Zealand and represents an exciting step for the business.”
“Supported by a strong partnership with the CBRE Australian Build-to-Rent team, Natasha is quickly becoming one of the strongest build-to-rent advisory voices within New Zealand.
“We haven’t seen large-scale institutional grade build-to-rent within New Zealand yet, but build-to-rent is a well-established sector in the US and Germany. The UK has been exploring the concept for coming on a decade, gaining real momentum only in the last five years. New Zealand and Australia have both been making noises about this sector of the market since 2017, but Australia, specifically Melbourne, has made huge leaps with this type of development in the last six months.”
Sarkar says that one developer active in Australia is Greystar, who first entered the UK only in 2018. “I helped advise them into the UK market with a 548-unit build-to-rent development in London, they are now focused on delivering 10,000 units across the UK by 2022. They have recently launched into the Australian market, having acquired two adjoining sites in South Yarra, Melbourne to deliver over 500 build-to-rent units. This is a strong indicator that they have confidence in this product having a place within the Australian market. I’m excited to have successful large-scale build-to-rent so close to our shores, and am anticipating build-to-rent’s rapid expansion in the New Zealand market”.
For New Zealand/international news or global stories, follow us on Twitter.
ABOUT CBRE GROUP, INC.
CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2019 revenue). The company has more than 100,000 employees (excluding affiliates) and serves real estate investors and occupiers through more than 530 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.