Real estate advisory and property services provider Cushman & Wakefield has released insights from its Q2 2024 Build-to-Rent update. The investor survey found that urban, low-amenity, mid-rent build-to-rent projects were investors’ first choice as the preferred investment type, with 53% choosing them as their first choice and 25% as their second choice.
The low-amenity build-to-rent asset class has become increasingly attractive to investors, but this is not an “amenity arms race” as seen in the US. According to the data, US renters can afford to pay a premium for highly amenity properties. In the US, households that signed a new lease in May 2024 spent an average of 22.1% of their income on rent.
This is much lower than the UK average of 28.2%. These ratios vary by location, but overall, renters in the US spend less of their income on rent than in the UK. Using research from the US multifamily sector, Cushman & Wakefield examines how retention rates differ across different class multifamily properties, finding that retention rates are higher in “Class B and C”.
Class A – the top segment of the market with the lowest retention rate, averaging 51% in the first half of 2024. Lower retention rates in prime locations can be explained by more location-independent tenants who are more likely to become first-time buyers, as well as the loss of tenants to new competitive locations (often attracted by incentives).
Class B – Assets often have excellent fundamentals but are generally older properties that are more affordable for the average American. These properties are regularly upgraded to Class A quality but often offer slightly cheaper rents. Class B assets had an average retention rate of 54% in the first half of 2024.
Class C – These properties are typically older, more affordable buildings with few amenities. These are in short supply in the U.S., and since Class C rents are among the lowest in the industry, tenants have limited options to move if they don’t want rent increases. Class C has the highest rent retention rate – 60% in the first half of 2024.
While the US data does not provide a direct comparison to low-amenity build-to-rent deals, it does show that the cheaper, lower-amenity deals have higher retention rates, which in turn lowers operating costs. As new supply enters the US market, rent growth has cooled while wage growth has continued to increase.
Cushman & Wakefield believe this is a trend the UK needs to adopt by building more new rental housing to improve affordability. A low-fit build-to-rent offer would cater to a much larger UK tenant demand pool.
In the UK, 82% of renters earn £39,000 or less. The most popular income range for private renters in the UK is £20,000-£29,000, which accounts for 24% of private renters. Providing a more ‘affordable’ product with few amenities would broaden the target audience for investors.
