SFR: A Rental Market Keystone

As suburban SFR matures, it is increasingly becoming the most important stage within the living sector, says Adam Stephenson, Operations Director at Ascend.

Few sectors have seen an influx of capital to rival that of single-family build-to-rent (SFR) over recent years. From barely existing in the UK a decade ago, SFR has become one of the most dynamic asset classes, embraced by residents and investors alike.

Amid the strong demand and rapid expansion, does the received wisdom around the sector’s role and target market match the on-the-ground realities? It is usually assumed that the sector’s resident base extends little further than young families, attracted by the extra space, high quality of management and security of tenure that is on offer. But does that hold?

As a relatively young asset class, definitive insights are hard to come by, something that Ascend has sought to address with a series of ‘Snapshot’ reports drawing on its unrivalled dataset. And the conclusions suggest that SFR’s scope, role and target market are all much wider than might initially be thought, particularly so in suburban locations close to major conurbations.

Arriving earlier, staying longer

The first of Ascend’s ‘Snapshot’ reports focuses on the Greater Manchester region, one of the UK’s most mature SFR sub-markets. There are some headline statistics – drawn from the homes in the region under Ascend’s management, across multiple operating platforms – that will immediately raise eyebrows.

Just shy of 75% of residents are 35 or younger, with an average age of 32. Half are aged between 26 and 35, and more than 60% of SFR households have no children somewhat confounding expectations of what a typical resident might be.

This all suggests that, far from being just for families, people are moving into SFR earlier than might otherwise be assumed, both in terms of age and life milestones. Anecdotally, these homes are not only being chosen by families, but young professional sharers and couples looking for more space too. Manchester’s market dynamics – strong transport links from suburbs to city centre amenities, and a robust multifamily offer providing a pool of potential residents that are already living within BTR – make these effects more pronounced. But they remain indicative of how the wider sector will mature, especially in similar suburban settings around major conurbations.

As well as arriving earlier, residents are staying longer than many might think. In Greater Manchester, the average SFR resident has been in the same home for 2 years and 10 months. But given more than half of the sector is less than five years old, this understates how long people are staying put. 44% of SFR households have lived in their current home for over three years, one in seven for more than five years - and of those, 75% have been in occupation since the property was first completed. Three quarters of residents have renewed their tenancy or remained in their home beyond the initial agreement.

We need to be a little careful extrapolating these trends to the UK as a whole. Greater Manchester is further along the SFR journey than most regions, and offers a range of advantages that makes such homes more attractive to younger residents. The lead it took with multifamily is also a key factor – the numerous BTR blocks in its city centre house thousands of residents that have ‘bought in’ to concept and the benefits it brings, and as a result are comfortable making the move to SFR sooner. This effect can most easily be seen by comparing Greater Manchester with its near-neighbour Cheshire, the focus of Ascend’s second Snapshot report. Average resident age is three years higher in Cheshire, and each household is more likely to include children, reflecting its relatively small multifamily sector and the more semi-rural settings of most SFR sites in the county.

Rental keystone

The wider context for these findings is a private sales market that is seeing the age at which people buy their first property increase, lengthening the time they rent for in general, and SFR homes in particular. While SFR is a proactive choice for many – enjoying the flexibility, superior product and ease of occupation it provides – for others it is a stepping stone between the houseshares of early adult life and owning a home of their own.

The attractions of SFR in this context can be seen in its relative affordability. Across homes managed by Ascend in Greater Manchester, monthly rent represents 27.9% of the average household income of £47,900. By comparison, the same household would be eligible for a mortgage of around £225,000; at current market rates, the repayments would represent around 35% of income.

People’s time in the living sector can be broadly divided into three stages: co-living, such as student accommodation; multifamily urban schemes; and suburban single-family homes. The attractions of SFR, in Greater Manchester at least, is seeing people move on from multifamily at an earlier stage than many analysts of the sector assume. It is increasingly possible to see all ‘living’ sub-sectors as different stages on the same spectrum, with each one feeding the next as residents’ requirements shift in a virtuous cycle of increasing comfort with BTR and ongoing preference for similarly managed homes. It also raises interesting questions about investors’ need to prioritise brand and customer experience alongside the necessary scale to truly capitalise.

As private sale affordability (or lack of it) expands residents’ time in SFR, the sector is increasingly the longest, and most important, stage in the typical rental journey. What we are seeing is a sector that is extending its reach and influence beyond what may have previously been assumed to be its ‘natural’ role, becoming a small but rapidly-growing keystone of the rental market. It is a trend we can expect to continue, especially in city locations as the asset class continues to mature, grow in scale and provide wider options for residents to meet their changing needs.

It is clearly a popular option – across stabilised schemes under Ascend’s management in Greater Manchester, occupancy stands at 98.7% - and in many ways this is a reflection of the strengths that have made it so in-demand among both residents and investors. But it provides a lesson: it is not just families that the homes need to cater for. Platforms must identify sites that not only provide schools and other family-centric amenities, but also meet the needs of other demographics. That means locations with strong connectivity to urban centres, and access to the sporting and leisure facilities that a younger cohort is looking for.

It also, if we may be so bold, highlights the need for effective property management that takes a long-term view. SFR is growing, both in scale and reach; as it does so, it needs to make sure it grows its appeal among all potential residents.