Whilst much of the focus during the Covid-19 pandemic has been on the impact felt by the retail, leisure and hospitality industries, there remains cause for optimism in certain asset classes. One of these sectors being purpose-built rental housing, commonly referred to as 'build to rent' (BTR) in the UK or 'multifamily' in the US. The sector is commonly regarded as a defensive asset class, given its resilience, low volatility and counter-cyclical qualities.
Rent collections have remained high across Europe and the US, in comparison to other real estate sectors, with operators reporting 90%+ collection of rents.
Class B product (generally assets built within the last 20 years and, whilst of good quality construction, offering more dated interior and exterior amenity packages) is the best performer in the US. There are a number of factors driving this:
(a) a rental community that tends to be employed in industries and sectors less vulnerable to redundancy;
(b) limited new supply of Class B compared with new build premium product; and
(c) the ability to attract tenants seeking to cut their fixed household costs during a recession.
Market sources in the UK confirm a similar story, with the mid-market operators reporting better collection data and the expected softening of residential rents and occupancy levels not yet materialising. In the Asia-Pacific region, the multifamily market is very much in its infancy, save for Japan where the markets have shown resilience in both occupancy and rental levels throughout 2020.
Whilst the sector's underlying performance during the pandemic will be partially buoyed by state intervention measures which have provided near term economic stability and stimulus packages to support renters' ability to pay, the living sector is expected to remain relatively resilient in the coming months. The UK and Europe can look to the US for reassurance that this should prevail. Market commentators note that during the last two recessions (2001 and 2008/9) the US multifamily sector saw relatively low decreases in occupancy, shorter periods of rent deflation and returned quicker to pre-recession rental levels than the more traditional real estate asset classes. In fact, rents fully recovered and reached new rental highs within three to four years of each decline.
The resilience of the residential rental sector throughout these most challenging of times serves to underscore the widely held view that BTR / multi family as an asset class will continue to attract a growing share of real estate investment with increased capital inflows from global investors, as the world economy emerges from the Covid-19 crisis.
Contributor
Head of Real Estate & Partner
