Build-to-rent (BTR) is the asset class on everyone’s mind right now – but it is still in its early stages.
A study by EY, commissioned by the Property Council earlier in the year, found that BTR housing is currently worth $16.8 billion, but has the potential to expand by a factor of 17 to a $290 billion sector, which would see the creation of up to 350,000 new apartments in an optimistic scenario.
The study also found only 11 operating build-to-rent projects, and another 72 projects in the pipeline. The report suggests on conservative estimates, if the sector grew to just three per cent of Australia’s residential stock, it could be worth $290 billion.
As some of the early movers in the Australian market, Sentinel and Mirvac have both learnt that community is one of the key ingredients to keeping residents happy and occupancy high, but that there is still a learning curve when it comes to the general public’s understanding of the asset class.
So, what is build-to-rent housing?
BTR projects, known as multifamily housing in some regions, are already popular abroad. These initiatives entail a company overseeing the design and construction of the building, then retaining ownership upon completion. Subsequently, the company rents out the apartments to tenants and provides ongoing management and leasing services.
BTR properties often come with lease arrangements that diverge from traditional rentals. These may involve extended lease terms with unique renewal conditions, minimal or no rental bonds and the freedom to personalise the apartment (like painting the walls) and have pets.
Additionally, amenities in these buildings are often a core part of the rental offering for residents, encompassing features like pools, shared outdoor spaces, BBQ areas, gyms, yoga studios, communal workspaces, community gardens and even cinemas. Cleaning and maintenance services might also be part of the package.
Community and education
Mirvac’s BTR lead Angela Buckley sees two types of renters coming into Mirvac’s BTR properties.
“What we found, particularly in Melbourne, [BTR] has really attracted quite a strong expat community,” she said.
“These are probably people that might have been abroad and are returning to Australia and because they might have lived in the UK or the US and they’re very familiar with multifamily, so they have a sense of relief that this category of housing is actually down here in Australia.
“But by and large, I would say that there is a lot of surprise and delight for customers. Typical Australian customers are used to renting in the private market.
“In saying that, I think sometimes there can be some level of scepticism to say, ‘hang on, do I actually get all of this’ because renters typically aren’t used to being treated as customers.
“The real opportunity for BTR is that the renter is genuinely the customer.”
Mirvac’s LIV secured five properties in its seed portfolio, which are set to deliver close to 2,000 apartments, nearly halfway to its 5,000 goal. By 2024, 3,300 residents will call LIV home across Sydney, Melbourne and Brisbane.
Sentinel’s Managing Director in Australia Keith Lucas, who has lived in one of Sentinel’s Subiaco BTR asset in Perth, agrees there is still a learning curve of understanding when it comes to BTR.
“These properties operate on retention rates, occupancy and the sense of community that you can create around the building,” he said.
“The idea that renting is the sole business of the landlord and the entire focus within a building, is absolutely a different experience to what most Australians would know as the rental process.
“Institutions, like ourselves, and the institutional investors that are behind us hold themselves to a high corporate standard when it comes to owning and managing these buildings.”
Sentinel completed Australia’s first purpose-built institutional BTR development in Subiaco, Perth in 2019 and saw practically 100 per cent of the studio, one-bedroom, two-bedroom, and three-bedroom apartments leased within nine months. Phase 2 of Element 27 opened in April of 2022 and has since achieved similar success. They are soon to begin construction on Phase 3 of the precinct and are in planning on a fourth phase, with more than 370 rental units expected to be delivered across all phases on completion.
The group aims for roughly 90 per cent occupancy or higher at each of its apartment communities and for residents to be staying for more than one year.
Mr Lucas said this means they need to provide quality services and a quality experience.
“There’s currently a major shortage of rental accommodation and housing across the country and not only do we want to help with filling this gap and delivering greater housing choices, but we’re focused on making sure we’re providing a consistently high level of service, high-quality product and great rental experience across our portfolio. Ultimately, we know that in the long-term, that is what will make our properties a great place to live and support the retention of existing residents and attract new renters in the market,” he said.
Sentinel’s Regional Director of Asset Management Vanessa Healy said that a number of parallels can be drawn between the needs of Australians and Americans when it comes to renting.
She said residents are generally looking for transparency in pricing, security of tenure, to know that the building will be maintained appropriately, that there will be quality amenities on offer and an easy onboarding process.
“Once we get potential renters in the door, meeting those needs is generally easy for us given our well-established rental processes and professional standards of service,” she said.
“Even at the first touchpoint of being given a personalised private tour of the property by our onsite staff, I think that imparts how the experience is going to be for residents.”