There is increasing appetite to develop the PRS (Private Rented Sector) across the UK; the ‘Build to Rent’ (BTR) model will, of course, be fundamental to this growth but is the sector’s existing approach progressive enough? TowerEight are of the view that much can be learnt from other areas of property, starting with hotels.
What are the similarities between hotels and the PRS sector?
|Investment Model||Investors focus on net operating income (yield), rather than individual capital values (IRR)|
|Product Philosophy||Excellent customer service is the single one component of product success, as word of mouth is fundamental to product longevity|
|Brand Strategy||To up-sell an aspirational lifestyle to the Guest/Resident, not just provide a roof over a traveller’s head|
|Product Location||Proximity of product location to transport/accessibility to/from the site is a critical component to its success. Also important is its position in relation to a desirable community|
|Design Priorities||Create Atmosphere/Hub in lobby/entrance area, restaurant/bar
Maximise rentable net floor area
Efficiency of building management & operations
|Operations Strategy||Management of guest booking, check-in and check-out, and the efficiency of repair/refresh turn-around is key to maximising profits through higher occupancy.
Management of tenant churn, and the speed and cost of a unit refresh between letting is key to efficiency
|Maintenance/Repair Strategy||Operations procedures should be fully considered from the perspective of guest/resident experience during maintenance, before they are accepted by the Client|
|Refurbishment Strategy||Development of lifecycle costs and cyclical repair/replacement strategies on a cash flow month-by-month basis is fundamental to achieving long-term positive cash flow|
What Challenges does the PRS face?
Within the existing residential development business model, developers build volume, compare sq.ft rates and sell units throughout the build period. When a unit has been sold, any ongoing obligations for the developer to manage the end product, improve operations, or address perceptions of the scheme are gone. We do not believe that this approach will succeed for the long-term or change wider perceptions of the PRS.
Like hotel guests, PRS residents increasingly anticipate a community, a culture within the scheme, and certainly do not think of their property as a ‘unit’. PRS operators and developers need to consider their customer in this light, and the residential delivery model may struggle in its transition into PRS without at least a different level of experience across the sector.
Furthermore, the delivery of PRS schemes carry some risks – so let’s take a model that has grown in the UK over the last 10 plus years to become one of the leading markets in the world. The hotel sector’s business model has well-established supply chains, funding solutions, and delivery models capable of going from inception to completion of 100-bed properties within a year.
Can the PRS learn from the hotel sector?
At the ULI’s Build-to-Rent: Design Guide conference, the key message from PRS developers was that the industry’s perception of renters has to shift. They are not ‘tenants’, but ‘residents’, and should really be considered as guests. Happy residents are key to achieving a successful PRS scheme.
If a happy resident is the common denominator for success in both hotels and the PRS, then responsibility for delivering and sustaining a successful PRS scheme must sit with the operator. Once we start to consider how pivotal the role of operator really is, a host of other similarities arise that are connected directly to the resident’s experience of the building.
Customer focus is paramount to the success of BTR, as is improving service standards. This starts from the very outset of the construction process. Operators with the right approach will develop a BTR customer base for the long-term and change the very limited perception of the PRS that currently exists.
PHOTO CREDIT: Derek Jensen