Birmingham: Build to Rent

With a swelling pipeline of new schemes, Birmingham’s build to rent sector is belatedly taking off. Build to rent specialists at AECOM, Peter Lakin, Mark Bevan and Sean Cook investigate the sector and provide a cost model to help developers, funders and operators make the most of their investment.

Build to Rent (BTR) may be booming across the UK, but Birmingham has taken a while to get the message. Now, at last, that is changing, thanks to a growing population and a bustling, vibrant economy — not to mention a host of high-profile schemes completed, in progress or in planning. Projects such as Nikal’s major city centre development Exchange Square 2 and Blackswan’s Gilder’s Yard are part of an expected pipeline of around 5,000 units around the city. They join existing landmarks such as Exchange Square 1, the Lansdowne in Edgbaston and the Forum in the Chinese Quarter in bringing critical mass to Birmingham’s BTR sector. If there isn’t quite a BTR scheme in every district, it’s not far off. The regeneration of Broad Street will have a new centerpiece in 2022, when Moda’s The Mercian (previously 2one2) with its 481 apartments completes. Head south past the Mailbox and see the site of the Invesco-backed Holloway Head, which promises 484 BTR apartments.

Circle back north to the Jewellery Quarter to check progress on the Legal & General funded Newhall Square development, by Spitfire Urbane/IM Properties, which will provide 220 BTR apartments with ground-floor commercial space, and the 14-storey Aberdeen Standard Investments’ Lionel House (due for completion in 2021). Nevertheless, the fact remains that Birmingham has been slow to succumb to BTR’s charms. London paved the way, with the post-Olympics transformation of the athletes’ village kick-starting half a decade of feverish activity, fueled by weak supply and strong demand for affordable, high-quality housing. Last year Savills estimated that 34,840 new homes would be completed in the UK during the third quarter of 2019, with another 74,466 in planning. Manchester followed closely behind London, with economics and demographics combining to provide fertile ground for BTR to take root. British Property Foundation estimates showed 75,747 BTR units in planning, under construction or completed across the city at the end of 2019. The good news is that similar factors are finally enabling BTR to flourish in Birmingham, with significant inward investment over the last decade driving the shift. Organisations such as HSBC and HMRC have brought jobs. The rebuilt New Street station, better tram services and upgrades to the M6, M5 and M42 have renewed the transport infrastructure, with HS2 to add more benefits, if and when it completes. A new library and science museum have upped the city’s cultural credentials — and hosting the 2022 Commonwealth Games will burnish its credibility even more.

Birmingham’s population growth has been steady, prompted by new jobs and the city’s five universities, which produce 67,000 graduates a year, 50% of whom stay on after graduation. Add to this the West Midlands Combined

Authority’s target to build 215,000 new homes over the next two decades, and the result is a big opportunity for BTR funders and developers. Indeed, in this market, the city’s relatively late entry may work in its favour, with developers able to capitalise on lessons learned from other, earlier projects across the country.

TAKING A LONG-TERM VIEW

Institutionally backed BTR projects are all about the long haul, and so cost models need to balance capital and operational expenditure to get an accurate picture of a scheme’s returns. This is the difference between BTR and open-market schemes — even those destined for the private rental sector. With BTR, the organisations and institutions that forward-fund its construction will usually be around for the next 30 years of operation. And while returns on a BTR project are generally lower than for those in the open market, the long-term gains can be substantial. To make the most of this, developers entering Birmingham’s BTR market need to build up their knowledge and understand the running costs of a building during the design stages. While apartment specifications may not be so different from a comparable layout for a good-quality open-market offer, the specification of amenities and the associated maintenance and management regimes will require extra attention. A gym and a pool may look good in the sales brochures, but their long-term cost can eat into that all-important net operating income. Placemaking is a key consideration — and an area in which BTR developers could learn from their equivalents in the open-market residential sector. Public realm, communal areas, cafes and even storage for online shopping deliveries and equipment such as bicycles may be less glamorous but provide more efficient use of space and help to create a feeling of community. And if a scheme fits neatly into an existing masterplan, that’s even better.

UNDERSTANDING THE END USERS: YOUNGSTERS AND BOOMERS

A clear understanding of a BTR building’s end users will also be essential to funders and developers who require a successful return on investment. The standard profile of a BTR tenant as a young, single occupier still rings true here. After all, Birmingham is a youthful city, with 75% of city centre inhabitants being under 35 years old. Those students who remain in the city after graduating will want to match the quality and service they’ve experienced in their student accommodation. Busy, earlycareer professionals may not have the time or inclination to handle maintenance themselves, preferring the support that BTR accommodation provides.

That said, the tenant landscape is diversifying. One of the first tenants into the Lansdowne — an early BTR scheme in Birmingham, completed by Long Harbour and Seven Capital in the first half of 2019 — was 51 years old. Knight Frank’s UK-wide 2019 tenant survey noted that more than one-third of renters were aged 25-49, living either as couples or sharing with friends. Other survey categories included families, older renters (either single or in couples) still in employment, and retired baby boomers. It’s reasonable to assume Birmingham will reflect these nationwide trends. These varying tenant types will all have different criteria when searching for a rental property, and BTR designs must decide how best to accommodate them. Common to all will be a need for appropriate amenities (including those available in the surrounding area), decent transport and a good level of management and maintenance support. Features such as furniture packs, with a range of options for different tenant groups, or extended warranties for key equipment and components, will bring tenants in and offer a superior user experience.

SPECIFYING FOR SUCCESS

Developers need to remember that the standard one-bedroom configuration may not always be the best fit for the diverse BTR demographic, despite the efficiency of the net-to-gross ratio for such schemes. Offering homes with more bedrooms and a variety of building typologies, depending on the particular area of a city or its suburbs, may be a better fit for local housing needs and may be more sympathetically received by the council’s planning teams. Nevertheless, the overriding ambition must be to deliver an efficient building with acceptable whole-life maintenance overheads. In an emerging market, the rush for differentiation may result in showy, expensive buildings that take longer to recoup their build cost. Tall towers, for example, are attractive as statement buildings, can offer tenants benefits such as stunning views and may enable developers to pack more revenue-generating apartments into a limited footprint. But, as any contractor will tell you, going higher makes the construction methodology more complex and, ultimately, costlier. Developers should also challenge design teams to make ease of maintenance and management a critical path from concept design onwards. Consolidating concierge and reception areas, if done cleverly, can mean fewer staff are required cover them once the building is operational. Developers and operators should also reflect on those elements of residential schemes that occupiers highlight as being important to them. Factors such as acoustic performance (noise is often a complaint) or fire safety will reward special focus.

Sustainability should be an integral part of the design and construction phase. Green technology and renewable energy should complement efficient thermal performance, backed up by responsible sourcing during procurement and construction. Smart components for mechanical and electrical equipment can provide remote monitoring, smart metering and service alerts. Installing superior IT connectivity will enable users to report faults quickly and get regular service updates via apps, improving their experience. In any case, fast connections will be expected by tenants to support their IT needs such as home office use, gaming and streaming.

STANDARDISING FOR EFFICIENCY: GO MODULAR

Standardisation of products and components will help bring down the overall cost of a scheme, especially if a developer is looking to build out several schemes in the city. Approaches such as modular and offsite construction can bring a factory-style methodology to a project. Tools such as 4D or 5D BIM enable teams to standardise building components down to the last detail and integrate the cost plan and maintenance into the digital model. Parametric cost modelling can make the systematic examination of the performance of alternative products and designs more efficient, providing granular detail around different floorplate configurations. In the operational phase, the consistency of components and products will make it easier to achieve economies of scale in maintenance and management contracts across multiple developments.

PROCUREMENT: ROUTES TO THE LOOT

Effective procurement and a firstclass supply chain are key to getting any project delivery right. Simple, straightforward procurement routes are important, along with clear and easily understood risk transfers. When it comes to procuring BTR schemes, many developers and funders tend to favour competitive, single-stage design and build routes, although this may depend on the contractor and supply chain appetite. Contractors will tend to prefer two-stage design and build, which gives them some flexibility to influence the design and cost, through the integration of their key subcontractors earlier in the tender process. Whichever route they choose, developers and their funders will need to ensure they work with contractors who share their mind-set of high-quality, efficient delivery with an awareness of long-term maintenance and service, and who have a track record to demonstrate this.

Achieving that may be easier said than done. The embryonic nature of the BTR sector in Birmingham means that local principal contractors with the relevant skills and experience can be hard to find. It may be down to the regional offices of the tier one contractors to pick up the work, at least in the short term. Contractor-led supply chains will have a different composition from that of standard residential and commercial projects. As well as the usual trades for the construction phase, developers and operators will need to procure cleaners, building managers and maintenance teams to support the long-term running of the asset. There is, however, the opportunity to bring innovation into the supply chain. Some 99% of businesses across the Midlands region are classed as small or medium-sized enterprises — and 80% of these have fewer than 20 employees. Among these, there will undoubtedly be start-ups, specialists and craftspeople who can do things better, faster and more sustainably than their larger rivals.

The potential to bring knowledge and support to newer businesses in this way and thereby build social value through the construction of BTR schemes should not be underestimated.

ABOUT THE COST MODEL

This cost model represents a medium quality BTR scheme in central Birmingham. It comprises a 20 storey residential tower, providing circa 200 units with an average apartment size of

The authors would like to acknowledge the contribution of AECOM colleagues to the development of this article and cost model. An edited version of this article first appeared in Building magazine in January 2020.

63 square metre (sqm). The scheme includes ground floor amenity space with a concierge facility, gym and cafe/lounge area. Gross internal area is circa 16,800 sqm (180,834 square feet (sqf)) with a net internal area of 12,600 sqm (135,625 sqf), reflecting a net to gross ratio of 75%. The estimate is based on prices current at Q1 2020 and uses rates taken from similar projects competitively tendered within the local market via a single stage design and build procurement route.

The cost model assumes traditional bathroom construction and excludes demolition, unfixed furniture, fittings and equipment, operations and services equipment, professional fees, local authority fees and charges, section 106/278 agreements and VAT.