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News Release

Edinburgh

Private Rented Communities offer alternative to home ownership in Scotland


Edinburgh, 17 February 2014 - Leading property consultancy Jones Lang LaSalle expects private renting in Scotland to continue expanding over the next decade, and has earmarked the creation of Private Rented Communities as a viable option for accommodating the increased demand.

Jones Lang LaSalle has released a new report into the sector – Building Private Rented Communities - providing new insights into the asset class that will be the legacy of Build to Let initiatives. It highlights the organisations taking at-scale residential development and investment seriously, noting the range of entry points into the sector that are being considered.

Between 2000 and 2011, Scotland has seen a clear escalation in private renting from circa 6-7% of households in 2000 towards 11-12% in 2011. The reasons for such an expansion are widely known and include house buying affordability and the availability of mortgages. Recent forecasts by Jones Lang LaSalle show that house prices in Scotland are set to continue rising over the next 4 years, which will continue to impact demand for quality rented housing.

Jones Lang LaSalle House Price Forecasts
 

2014
2015
2016
2017
2018
3.5%
4.0%
5.0%
3.5%
4.5%

 

Commenting on the viability for Private Rented Communities in Scotland, Jason Hogg, Director of Jones Lang LaSalle’s Residential Team in Scotland said: “To date there has been limited activity in the Private Rented Sector within Scotland. However, interest has increased substantially with enquiries coming from institutional investors, developers and landowners who are keen to explore the opportunities presented by this new exciting sector. We fully expect the size of the PRC sector to continue to expand in Scotland over the next decade and this should present more opportunities for institutional investors. Certainly, the dynamics of the market should open the eyes and ears of any UK investors.”
 
 
Jones Lang LaSalle has released a new report into the sector – Building Private Rented Communities - providing new insights on the creation of Private Rented Communities, the asset class that will be the legacy of Build to Let initiatives. It highlights the organisations taking at-scale residential development and investment seriously, noting the range of entry points into the sector that are being considered.
 
Since the Private Rented Sector Initiative (PRSI) was created by Government in May 2009, residential investment has climbed up the consciousness of a wide range of fund managers and UK residential delivery bodies. We are beginning to see the tangible results of this activity, as the sector makes significant steps in becoming a legitimate alternative asset class to commercial property.
 
The report highlights the progress of new investment into the sector with Jones Lang LaSalle now estimating that there is close to £5bn of capital directed into it. Tom Henry, Head of Residential Investment at Jones Lang LaSalle comments: “There is a significant wall of money seeking UK residential assets, with more coming forward every day. Those who are serious are forging ahead with or without Government funding, with many different investment models being considered as growth in the sector continues.
 
“There are still challenges that need to be overcome, but this report does something that has never really been possible before, looking forward to the key remaining issues that the industry must tackle to make Private Rented Communities the asset class that investors want and tenants deserve.”
 
Titled ‘Building Private Rented Communities’, the paper goes on to detail the investment models that are being developed, many of which are applicable regionally as well as in London. Adam Challis, Head of Residential Research at Jones Lang LaSalle and author of the report notes: “People often associate the Build to Let model of delivering Private Rented Communities with London and the South due to stronger value growth. In reality, pension funds and other institutional money is more focussed on the income return and regional cities such as Edinburgh and Manchester represent some of the best opportunities for strong yields.”
 
The report highlights 5 key areas that need improvement in order to expand the sector, including a need to rebrand the new asset class to better reflect the experience being offered to new tenants. The 5 issues that need attention include:
  1. Local Government must develop a better understanding of the Private Rented
  2. Communities development model and how it needs to be treated differently in planning applicationsContinued innovation from the wide range of investors looking at the model will bring forward new investment opportunities
  3. Better funding models and an alignment of long-term institutional money with more risky development lending that is required
  4. Re-branding ‘PRS’ or ‘Build to Let’ as Private Rented Communities as a way of better reflecting the tenant-centred legacy of this asset class
  5. Improvements to the data and metrics used to inform investment decision-makers, currently well behind the standards of commercial property colleagues.
To download the full report please click here >>>
 
Alternatively, please email Harry Hussain at hhussain@webershandwick.com or call 07525 903 588.
 
To view commentary from Adam Challis, Head of Residential Research please click here >>>