“Miss out the middle man”. It’s a familiar marketing mantra. Made famous by the likes of Direct Line Insurance, it’s a compelling message for the masses. Life would be so much simpler, not to mention cheaper, if those pesky brokers got out of the way and stopped creaming off their cushy commissions.
It’s no surprise, therefore, that a shiver went down letting agents’ spines when Build To Rent (BTR) emerged nearly a decade ago. Instead of hiring estate agents – the meddling middlemen of property – developers - started finding tenants directly. After all, why would any self-respecting developer want an agent’s finger in their pie?
But it wasn’t just letting agents’ crust under threat. Private landlords began to worry too – especially as the government seemed firmly aboard the BTR bandwagon. While private landlords were squeezed by extra stamp duty charges, the Build To Rent brigade benefitted from favourable loans.
Building up a head of steam
With the government encouraging BTR schemes as a means of solving the housing crisis, investment giants like Legal & General and M&G have sniffed an opportunity. Money has flooded in as a result, with property consultancy CBR now claiming that BTR is likely to be the most resilient property sector in the post-Covid-19 world.
Did you know that over £1 billion was invested in new build to rent projects at the start of 2020 before the pandemic? Well, there’s already £1.4 billion worth of deals under offer now. This means that 2021 is expected to outperform 2019. No wonder Savills has long charted the “rise and rise” of BTR and believes it might comprise 50% of the market in the not-too-distant future.
BTR is also attractive to renters. If you like purpose-built communal spaces and plush specifications then BTR will be right up your street. And why not? With four in ten tenants currently stuck in cold and damp properties that unscrupulous landlords refuse to repair, a new build with an on-site manager to fix snags pronto sounds like heaven.
The simplicity argument is also persuasive. Build to rent properties often come with long 3-year tenancies that provide stability and security. Plus there are frequently no upfront fees except deposits or advance rent. Sidestepping inventory and reference charges, which are part of an agent’s daily diet, seems extremely palatable too.
Should agents be worried?
Although letting agents must be aware of changes afoot there’s no need for panic just yet. Private landlords still dominate the property landscape. Although a plethora of BTR properties are in the pipeline, they’re still just a fraction of the 4.5 million houses and flats owned by landlords.
What’s more, BTR developments are often very large. And that means there are stacks of properties to fill. This is where agents traditionally excel; therefore developers may find life easier with a letting agent by their side. Why ostracise a potential ally?
Another thing letting agents bring to the table is unrivalled local knowledge. They know the idiosyncrasies of the local market better than a large developer ever could. Plus they come armed with a pre-existing list of tenants looking for properties in that particular area. In many cases, they’ll have a pre-existing relationship with these prospective tenants too.
The perfect partnership
The bottom line is that agents have always adapted to change. And if they do so again – and there’s no reason why they can’t – then build to rent could prove to be an opportunity not a threat. But where, exactly, will they need to evolve?
According to Lesley Roberts, a partner at property management giant Allsop, it’s a matter of rethinking their margins and business models. This would necessitate (a) reducing commission rates so they’re attractive to developers, and (b) embracing new technologies to streamline services and help them handle a higher volume of tenants.
Fortunately, the former shouldn’t be a problem if the quantities are large enough. The second, meanwhile, would be inevitable even without the rise of BTL. The number of up-and-coming property portals proves it. The successful agents of tomorrow will be those who automate processes, do more referencing online, and facilitate digital applications. This will help them to move quickly and increase capacity.
The truth is that agents’ skills will always be in demand – both by renters who value an experienced local hand on the tiller and developers needing outside help. What’s more, BTR properties are best suited to affluent professionals who value a high specification and aren’t afraid to pay a premium. Estate agents know just where to find this discerning demographic. And that’s not going to change anytime soon.
So don’t write off the middlemen. When it comes to property, they’re often the men for the job.