Low cost add-ons for developers

Residential Property Market in the UK

The residential property market, like many other sectors in the UK, goes through cycles. Following completion of a development project (depending on how the asset is disposed of), there are typically two key stakeholders that form the basis of the residential built asset business model. These are commonly known as the Landlord and the Tenant. There are certain times when the market will be unofficially known as a landlord’s market and conversely a tenant’s market. These cycles are determined by certain market dynamics, which can dictate how each stakeholder may act at a given point in time of a built asset’s lifecycle.

A market in favour of Landlords is usually characterised by a plethora of prospective tenants, possibly indicating that getting on the housing ladder is extremely tough from an economic standpoint. From the tenant’s perspective, this market outlook may consist of a noticeable lack of choice, extortionate rents, guarantor requests, large capital outlays, and leases geared towards protecting the landlord for issues such as repairs. On the flip side, if rental market demand is down due to low or even negative interest rates, meaning mortgages are more accessible, there could be a surge of would be buyers not interested in considering renting as an option. In this instance, tenants may experience more flexibility and more favourable terms as Landlords are unlikely to find a queue of good quality applicants lining up to rent their asset.

The UK is currently in a unique situation as different regions across the country are experiencing their own individual market circumstances. London for example would be considered a landlord’s market as, in recent decades, the nation’s capital has benefited from the ever developing process of globalisation attracting millions of jobseekers from around the world who’s only realistic option is to rent when first arriving in the UK. London has therefore become a vibrant hub that has attracted a lot of overseas investment from wealthy individuals and businesses, particularly in the Real Estate sector. These market factors coupled together have significantly driven up property prices, making it almost impossible for first time buyers to get on the ladder meaning renting is the only viable option.

Challenges for Developers and Landlords

What is happening in London does not mean that this is a nationwide trend. Other cities, especially in the North, are more desirable options for first time buyers as housing prices are lower than in the capital. Landlords in these markets looking to rent properties can face challenges in terms of driving income and must therefore look for innovative ways to create more attractive propositions for prospective tenants as they are likely to have more choice. To get ahead of the competition, developers come landlords could look at boosting the attractiveness of their properties by including low cost add-ons in the development phase.

The Inclusion of Add-Ons

There are number of things that Landlords can do from both a practical and innovation perspective, especially today where technology has become so influential in our day to day lives. The right blend of add-ons can certainly broaden the appeal of a property to either buyers or renters, which can be quite significant in what is a volatile market.

Let’s use the example of an SME developer operating in the residential sector throughout the North West. The company are looking to build a block of 20 apartments to which they will sell units to buyers on long-term leasehold agreements or let to tenants on a rental basis. The developer is seeking flexibility as the market is turbulent and for the time being, the cost of borrowing is unexpectedly high, meaning there is a good chance half the units won’t sell immediately. To add to the developer’s concerns, there are several competing developments in the same location, resulting in strong competition for high quality buyers and tenants.

Here are some things the company could do to boost value and drive sales by looking at the add-on method briefly mentioned.

Extra Storage Space / Built in wardrobes

Everybody today requires ample storage space, and for every household avoiding a build up of ‘clutter’ presents an on-going challenge. When in the pre contract phase of a development, forward thinking developers may consider this and liaise with their Architect to make an allowance in apartments for designated ‘storage areas.’

In the overall scheme, such allowances can be implemented at low costs when considering the context of the overall development. However, such layouts must be thought out and planned at the correct stage of the design process, as varying the scheme later to accommodate storage space might require too much of a compromise in terms of other areas. It would be preferable to have areas for internal storage, but if this is not possible then external storage containers could represent a worthwhile investment as tenants and buyers are likely to value this add-on. It could be the difference between opting for one apartment against another.

Another possible add-on closely related to this could be the potential inclusion of built in wardrobe units. These can be a unique selling point and, if incorporated into the scheme layout at the outset, could be a good low cost add-on that tenants and buyers will find appealing.

LED Lighting

Apartments can have fantastic features, but they may not be desirable if there is insufficient lighting. Today, LED lighting can offer great benefits from both a practical and environmental perspective. LED lamps can be fitted as downlights that are recessed into ceilings, which provide greater levels of coverage when compared to a surface mounted halogen bulb for example.

From an energy saving standpoint, installing LED’s can also help landlord’s gain control of the property’s energy costs as a 4.3W LED GU10 can replace a 50W halogen GU10 bulb. This leads to an energy saving of 90% and they also last for a lot longer. If a block of 20 apartments is fitted with LED’s, the financial savings could be astronomical and may give the landlord grounds to offer a ‘bills all in’ lease to tenants. LED downlights are a no brainer for this type of arrangement, which is a unique selling point to tenants.

The upfront investment in LED’s when fitting out the apartment could be considered a low cost add-on that could drive enormous value for both the landlord and the tenant particularly if sustainability is high on their agenda.

White goods

Tenants or buyers of leaseholds for apartments will often see if white goods and certain other appliances are already installed in a property before deciding if they want to proceed. If an apartment does not have a washing machine, dishwasher or even a cooker installed, a tenant will realise that purchases need to be made and that a plumber and maybe other tradesmen will be required to fit the appliances safely. To some this will be a big inconvenience and may lead to discarding an option due to its lack of ‘readiness.’ To boost the landlord’s chances of driving sales, appliances can be supplied and installed in the construction phase at a reasonable cost. This will not represent a significant capital outlay and could prove to be a beneficial factor as far as return on investment is concerned.

Stainless steel appliances

Loosely related to the white goods factor, another add-on option could be an investment in stainless-steel products such as refrigerators. Similarly, to white goods, if such appliances can be included in the capital expenditure package at a low cost, the landlord may reap the rewards when it comes to letting the units.

Air conditioning

Air conditioning systems are a huge appeal to tenants and buyers and not usually found in apartment blocks. However, they are becoming more popular, particularly in the commercial world, and several large hotel operators make it a mandatory requirement as part of their service to customers. From an installation point of view, it can be argued they are not the cheapest of systems to install. Investment must be made in expensive condensers and extensive builders works are required to fit all the ductwork etc. It is also likely that bulkheads will need to be fitted in the rooms to house the AC units, which some may find unattractive.

However, doing this during construction as opposed to installing retrospectively could lead to huge savings and may prove to be the unique selling point that separates this apartment block from others. In terms of add-ons, AC would be in the higher cost bracket, but this could enhance the value of the individual apartments as well as the overall building. In the context of the outturn cost for the project, this is something that developers could seriously consider when looking at value for money.

High-speed Broadband

The inclusion of high-speed broadband within the monthly rent is something that many tenants would find advantageous. With increasing numbers working from home, having this service ready to use when moving into a new home is something that can be implemented at extremely low costs on the landlord’s behalf. When carrying out the construction, the selected provider of broadband will often carry out their infrastructure works at little or no cost, as their revenue will be derived from usage in the months and years to come. There will be builders works associated with installing this infrastructure, of which the electrical contractors will require payment, but it will certainly be a low cost in the context of the final outturn figure. Offering this service could be a decisive factor for tenants who are considering multiple options, as not needing to worry about getting broadband installed is a hassle avoided.

Apps

There are several app opportunities that landlords can investigate and develop if they wish as a way of differentiating their development. Alternatively, they may be able to provide a product or service via 3rd parties to tenants at a reasonable cost. For example, there are apps such as ‘splittable’, which is designed for multiple tenants living in the same dwelling who may have difficulty spitting the bills amongst themselves. Secondly, for tenants who are new to an area, it is possible to use an app called ‘around me’ which provides information about the area they are now living in and can present ideas on things to do to help with the settling in process.

Other apps have been developed that offer services such as ironing to tenants, which could be of huge value to certain individuals who have little time to carry out such tasks. The possibilities are endless and delving into this sub-sector could be a groundbreaking move for landlords, especially when looking towards to the millennials as the next wave of future tenants.

Smart home devices

There are several state-of-the-art devices and appliances that developers can consider to enhance the attractiveness of an apartment they are looking to rent or sell. Smart home devices, such as keyless entry systems and automated blinds, are popular additions that could be included at a reasonable cost to the landlord. Individuals may also find it useful to control how much money they are spending on utilities and products such as smart meters and smart thermostats can enable better management of this. These are realistic items that developers could consider and incorporate into their offering to give themselves a real competitive advantage.

The outlook

The property business is a cutthroat sector thwart with problems relating to the relationship between landlord and tenant and the service that is being offered. In this new era driven by advances in technology and efforts to tackle issues such as climate change, buildings will constantly need to evolve to meet the demands of this ever-changing world. It’s imperative that landlords get ahead of the curve to remain competitive and the use of add-ons designed to help with these issues could be hugely significant in helping them succeed.

Image credit: iStock.com/monkeybusinessimages

About Chris Williams

Chris is a Chartered Surveyor with 6 years experience in the UK Construction industry, working for a range of clients, undertaking Quantity Surveying, Claims Management and Project Co-ordination roles.