savills.com

CIH Private Rented Sector Conference 5th June 2014

Who’s investing?

What’s happening in the PRS market?

Why now?

What do renters want?

Where next?

Who’s investing?

Who? 1994

Who? 2014

Changing markets, changing times..

Why now?

Why? lack of opportunity

Source: IPF 2014

£580

£661

£752

£867

£835

£632

£587

£642 £663

£650 £647

£400

£500

£600

£700

£800

£900

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Commercial Property Universe, £bn

Why? strong relative performance

9 Source: Savills, IPD, Bloomberg

0%

2%

4%

6%

8%

10%

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%

Annualis

ed t

ota

l re

turn

s (

13 y

ears

)

Risk (Standard deviation)

IPD Commercial Property UK Residential London Residential Equities Gilts

Why? illiquidity remains a feature

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

Average 2002 - 2007

Year to Q2 2013

2014 2015 2016 2017 2018

Mortgaged FTB* Mortgaged Home Mover*

Mortgaged BTL Cash Buyers

Help to Buy - Equity Loan Help to Buy - Mortgage Guarantee

Source: Savills Research, CML, HMLR

Help to Buy boosts transaction

levels by around 12%

Forecast transaction levels

in 2018 at circa 1.2 million

Current

housing

transactions

below 1m

Why? help to buy a drop in the ocean

Source: DCLG, HMLR

28,50

Why? supply and demand

Source: DCLG, Savills Research

0%

10%

20%

30%

40%

50%

60%

70%

80%

1915

1920

1925

1930

1935

1940

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

Pro

port

ion o

f housin

g in E

ngla

nd

Owner

Occupied

Social Rented

Private Rented -

5.7m dwellings by

2018

Why? supply shortfalls

Source: HBF, DCLG

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

220,000

240,000

New

housin

g u

nits p

.a.

Private Enterprise Housing Associations

Local Authorities Demand Projections

Savills Forecast

Why? supply shortfalls across the country

Source: CLG, ONS

0

10,000

20,000

30,000

40,000

50,000

60,000

Net additio

nal dw

elli

ngs/

household

s

Supply 2012/13 Household projections

0

2000

4000

6000

8000

10000

12000

14000

Lower Mainstream (<£450psf)

Mid Mainstream (£450-700psf)

Upper Mainstream

(£700-£1,000psf)

New Prime (£1,000-

£2,000psf)

Super Prime (>£2,000psf)

An

nu

al

co

mp

leti

on

s (

Lo

nd

on

)

Supply (Annual) Demand (Annual)

Source: Savills

Why? supply shortfall greatest below £700psf

Why? rising demand across a wide geography

Source: Census

Why? PRS expanding fastest outside central areas

Source: Census 2011 & 2001

Area % PRS

households

Growth in PRS

households

2001 - 2011

Westminster 43% 37%

City of London 41% 43%

RBKC 39% 27%

Newham 35% 96%

Camden 34% 31%

Area % PRS

households

Growth in PRS

households

2001 - 2011

Barking & Dg’m 19% 176%

Tower Hamlets 34% 135%

Enfield 24% 116%

Hackney 30% 108%

Greenwich 21% 96%

Why? 70% of demand is PRS

Below £700

psf...

...70% of the

demand is for

PRS

Source: Savills

What do renters want?

Segments of demand

Age

2011 PRS

Households

England &

Wales

2011 PRS

Households

London

Up to

25 508,000 12% 77,000 9%

25-34 1,388,00

0 33% 356,000 41%

35-44 994,000 24% 219,000 25%

45-64 931,000 22% 163,000 19%

65+ 395,000 9% 47,000 5%

0% 50% 100% 150%

65+

45-64

35-44

25-34

Up to 25

Growth in PRS Households 2001 - 2011

London England & Wales

Source: 2011 Census

Reasons for renting

0%

10%

20%

30%

40%

50%

60%

70%

80%

18 to 24 25 to 34 35 to 44 45+

Can’t afford the deposit to buy a property

Can’t afford the monthly payments of a mortgage

Don’t meet the lending criteria for a mortgage

Flexibility

Source: Savills / YouGov

Tenancy length less important

0%

20%

40%

60%

80%

100%

18 to 24 25 to 34 35 to 44 45+

Age of Respondent

Would you like a longer tenancy agreement?

Agree Ambivalent Disagree

Source: Savills / YouGov

Reasons for moving

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

London Other cities

Source: Savills / YouGov

Reasons for moving

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

London Other cities

Source: Savills / YouGov

Reasons for moving

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

London Other cities

Source: Savills / YouGov

Location is key

0%

10%

20%

30%

40%

50%

60%

0 to 5 6 to 10 11 to 15 16 to 20

Hig

h o

r m

id im

po

rta

nc

e

Minutes travel to public transport

Walk Cycle Drive

Source: Savills / YouGov

Where next?

New Market Entrants

What? still a long way to go to get scale

0%

10%

20%

30%

40%

50%

60%

70%

Under £10m

£10 to £20m

£20 to £50m

£50 to £100m

Over £100m

2012 2013

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2012 2013

Developer Institution

Private Company Private Equity

Listed Registered Provider

Source: Savills

Where next? build to rent on large sites

Source: Savills Research

Canary Wharf

Wembley

Stratford

Croydon & Hackbridge

Where next? investors moving into development

APG / Grainger plc

£349.4m

Acquisition

National Portfolio

January

M&G Real Estate /

Berkeley Group

£105.4m Acquisition

London & South

East

March November

APG / Delancey

Development JV

Elephant &

Castle, London

Sigma Capital /

Gatehouse Bank

£700m Funding for

6,500 Rental

Homes

across UK

October December

LB Croydon / John

Laing / Essential

Living

230 PRS Apartment

Taberner House,

Croydon

February

Places for People /

Terrace Hill

901 units

West Mids, North

West, Scotland

May

Places for People /

Urban Splash

634 units

North West, South

West, Yorkshire &

Humber

Case study

83 units PRS

200 apartments other

tenures

Savills development

team advised on

comparable

transactions,

aggregate values per

apartment,

Prices, yields,

discounts

Design and

development advice

Case study

18 flats 4x 1b 14x2b

Within block of 40

125 year lease from

2006

£486 service charge

p.a.

Total residential floor

area GIA – 970/sq m,

10,444 sq/ft

Unallocated car

parking

Apartments let on

AST;s or licences

£122,460 passing rent

p.a.

Case study

Savills RCM team plus Bristol Development

Team, regional valuation teams advised on

PfP’s acquisition of £77.7m portfolio

656 apartments in 9 schemes – Manchester,

Stalybridge, Leeds, Bradford, Bristol, Plymouth

481 parking spaces

Ground rents from 540 apartments

Urban Splash retained by PfP for 3 years –

sales and management contract

Growing appetite from major investors in

regional PRS

Where next? deal structures for build to rent

Forward purchase completed stock Deposit plus payment on PC

+ Simple and fast

- Risk to developer, investor control of product

Land acquisition and development + Well understood

- Resource intensive, planning risk, build cost and market risks

Forward fund from a developer Phased payments to cover land, fixed construction costs, investment value

+ Control of product and development risk for investor, certainty for developer

+ Less resource intensive so scaleable

Where next?

Build to rent philosophy

Renter rents the whole building and not just single unit

Foster community experience

Encourage tenants to make ‘friends’

On-site team that know the tenant

Increase rents through product differentiation and offer

Reduce voids by providing exceptional customer service- target 96% occupancy

Budget for and control CapEx

Design for Maintenance and Durability

Charge for Additional Services

Manage, manage, manage!

Management is different

Where next?

Strong rental markets

Transport & Amenities

Economic prospects

Communities / Regeneration

Designed for rental

purposes

Specification

Unit mix and layouts

Scale & efficiencies

Influencing

Performance

Rental pricing

Control of costs

Customer interface

Discussion