Moorfield CIO Charles Ferguson Davie on the future of residential for rent
Moorfield has sold The Trilogy, a 232-home BTR asset in Manchester. This is the second sale of a stabilised BTR asset by Moorfield to an institutional investor in recent months, following the disposal of The Forge in Newcastle this July. Moorfield also sold The Keel in Liverpool in 2018, which was one of the first BTR schemes delivered in the UK. These disposals mark the latest milestone in Moorfield’s BTR strategy, which began as a pioneering leap into PRS investment back in 2012.
Things have come a long way since then, and investment in the sector continues to increase year-on-year. Q1 2021 saw more than £1.2 billion invested into UK BTR, the highest first quarter on record[1]. In total, £2.35 billion of capital was invested into the UK’s BTR sector in H1 2021, versus £3.5 billion in the whole of 2020, which despite obvious challenges proved to be a bumper year for the sector. The past few months alone have seen big institutional players such as Macquarie, Lloyds and BMO enter the sector, testament to its enduring appeal and strong fundamentals. With only 57,000 completed units but 5 million renters in the UK, we too still believe in the long-term viability of BTR and it remains a core investment theme for Moorfield.
We were early investors into BTR, pioneering operational and technological innovations which went on to shape the sector. These included the early adoption of flexible, pet-friendly and green leases, 24-hour concierge services and fibre-optic cabling to apartments. More recently, we have looked for opportunities to leverage these innovations into new areas of the residential market. We recently partnered with We Are Kin to create a portfolio of professionally managed student houses across the UK, translating our experience in customer-centric, service-oriented residential offerings to the HMO / student house market. Similarly, we have joined forces with proptech investment platform Bricklane to create a portfolio of PRS units from the existing housing stock.
These new areas are granular in nature, meaning that sourcing the right opportunities, managing the assets and generating attractive returns hinges on having the right processes and partnerships in place to scale the strategy. They are also reliant on the use of technology to source opportunities and provide the level of service that customers now expect. Our partnerships, coupled with Moorfield’s own 25-year experience of innovation, position the company well to continue to spot opportunities for strong returns in nascent sectors.
Crucially the partnerships with Bricklane and We Are Kin rely on the acquisition of existing housing stock rather than the development of new units. New developments are carbon-intensive, and as investors across the real estate industry move toward their respective net zero targets over the coming decades we expect to see an increased focus on optimising and future-proofing existing stock, rather than funding new developments. This is compounded by the current challenges of pricing development, inflating construction costs and supply chain issues that are making it increasingly complicated to develop residential units. Moorfield’s extension to investment in existing stock aligns with our net zero carbon pathway and an important element of this is to transition existing units to perform better environmentally and to be able to charge a rental tone that is affordable / accessible.
Our expanded residential approach represents an evolution of our strategy rather than a revolution. We started investing in purpose-built student accommodation in 1997, retirement villages in 2008 and BTR in 2012. Over the years we have also funded residential for sale developments and provided loans to residential developers. We will continue to leverage what we have learnt from the past and intend to embrace both technology and the changing ESG environment to prepare for the future.
There is an extraordinary weight of capital investing in the residential for rent sectors, which will help deliver much needed housing supply, and our strategy is to try and stay one step ahead to deliver a choice of housing options that are fit for purpose for a diverse range of customers.
[1] Savills, UK Build to Rent Market Update – Q1 2021, 2 April 2021, Link