Alternative Investments Conference - 26/09/17

Wednesday 15th November, 2017
Will Sargeant

This week I attended the Alternative Residential property conference in London. There were some excellent topics covered and some really interesting panel discussions, with four key alternatives covered extensively. Firstly PBSA, this is probably the asset class myself and the business I help run, The Property Recruitment Company are most familiar with. It's well documented that the market continues to see a steady investment stream, and some very encouraging transaction figures since 2015. However, there was a general consensus from key experts that the PBSA product would need diversification if it was to continue to thrive and build on its current 13% market share. What this diversification involves will naturally divide opinion. From what I listened to (and some of my own opinions) there are three core areas that could help shape the PBSA offering in the future.

Rental cost/dynamic pricing models - This does not necessarily mean PBSA must become more affordable to all (although I believe there is huge market potential here), but perhaps just more diverse, including flexible rental agreements, ability to “opt out” or sub let rooms during vacation periods. Basically more choice/flexible than a traditional 51 week agreement. This has already taken place in cities such as Edinburgh to maximise occupancy during the festival, but there is certainly more that can be done.

Service level improvements - This was a common theme across all Alternative residential classes, but it is clear whilst PBSA is considered a more “mature” market the “Student experience” needs to be at the centre of the service being delivered. I think whilst it is appreciated that there is always a key focus on achieving full occupancy, a brand’s ability to keep achieving this in a competitive market place will be directly linked to their ability to enhance the student experience. From a recruitment perspective we have seen a growing trend among providers for talent from customer focused industries such as hospitality, retail, leisure etc. In fact we have seen a 38% rise in providers opting for candidates from these sectors in 2017 vs 2016.

Innovation in Accommodation: This is not just about creating more attractive buildings, but instead making sure that student experience and a commitment to creating student communities is taken into account at the design and build stage. More communal spaces will naturally allow operators to host even better events and encourage student interaction.

I think overall those presenting on PBSA felt strongly that the market had performed very well over the last 10-15 years and was entering a phase where expectation level from consumers and investors was high, but that there was clearly a huge opportunity both in the UK and Internationally for operators to thrive.

The second main Alternative discussed was the PRS and/or Build to Rent market (still not sure which definition should be used but I like PRS!). I think much like investors, we have been following this sector with great interest and from a staffing perspective the focus on delivering excellence for the customer is paramount in this space. Whilst the number of PRS units is still comparatively low compared to other AI assets (16,720) to date, the amount of units in the pipeline (80,500) gives a clear indication that the PRS landscape will change dramatically over the next few years. Investors will be keen to see what sort of ROI these schemes can provide, from a recruitment perspective we are interested to see what type of talent is going to be required for this space, and whether the operators will be able to build in the right level of career opportunities for what will become an increasingly competitive sector. Another common theme in newer entrants to PRS, which we've already seen with PBSA is an appetite for the “owner/operator” model to be deployed. This is either when the investment arm creates an operating platform for when the assets go under management or enters into a JV to ensure their is greater control and partnership over the investment.

Retirement living was also discussed in detail. This is one alternative which has extremely compelling reasons for steady growth over the coming years, you only have to look at the growing number of people over the age of 65 in this country that want to consider alternative housing options outside of “downsizing” their property. I found Nick Sanderson’s assessment of why the market hasn't hit the scale which it has done in other countries such as Australia, refreshing and honest. Only in recent times has the product evolved to offer both vibrant retirement communities with excellent onsite amenities, with bespoke care plans that change with the needs of the resident. I also get the impression that the industry has become well regulated and pricing options that are both flexible and transparent. It will be interesting to see if the clear need translates to increased investment and new schemes, offering an exciting alternative to more traditional housing options for the elderly.

Finally, the segments on Co-living and Micro living were extremely interesting. The idea of diverse short or long stay options for the ever changing needs and living requirements of young “millennials” clearly has a space in the residential market. Anil Khera and Bruno Haid clearly understood their offering, and spoke with real passion on the opportunities of the Co-living model. Whilst Co-living might still be at early stage of its potential it's obvious from the Old Oak scheme devised and recently put up for sale by The Collective, that their is a growing appetite for products that promote community on a domestic and international scale.

In summary it was great hear opinions and insights from a range of professionals involved in Alternatives. Whilst it's obvious all represent a solid investment, what is clear that regardless of whether it's PBSA, PRS/Build to rent, co living, or retirement living its longevity lies with operators listening and servicing their customers before investors. Fortunately, if the AI conference is anything to go by, there are clearly a number of investors that understand this, meaning AI has a great opportunity to thrive in the UK and globally.