Inhabit Residential is the biggest build-to-rent (BTR) company you’ve never heard of. In recent years, it has quietly amassed a £1bn development pipeline of 3,500 units across seven sites in seven regional cities, the vast majority of which have planning permission.
To put that into perspective, the total number of units either under construction or in planning outside London is 27,000, according to the British Property Federation. Inhabit’s portfolio therefore accounts for around 10% of the entire regional BTR pipeline.
One of the reasons it is less well known than, say, Greystar - another vertically integrated company - is that it is not currently buying sites, and has not been for the past year. So why, after building up a healthy pipeline, is it happy to sit “on the sidelines”, as managing director Ana Nekhamkin puts it? And when does it plan to return to the market?
The firm began buying land four years ago and has sites in Aberdeen, Bristol, Birmingham, Glasgow, Leeds, Liverpool and Manchester.
It intends to build and operate ‘urban villages’ in most of those locations and has plans for 1,500 student accommodation units alongside its BTR homes, as well as 100,000 sq ft of commercial and retail space and a few hotels. It focused on the regions initially because they were where it saw the most value, Nekhamkin says.
Inhabit bought a site for a 1,000-unit scheme in Leeds, for example - a city that is now becoming a BTR hotspot.
“Even until about nine months ago, a lot of investors and lenders would tell us: ‘Sorry, we’re not looking at residential in the regions.’ That seemed funny to us.”
Going into the regions early meant Inhabit could acquire prime sites in the city centres, something that, as Nekhamkin admits, is more difficult now. Institutions are chasing the best sites aggressively and they offer stiff competition. “It doesn’t make sense for us because our cost of capital is significantly higher than theirs,” she adds.
Another issue is that land prices in the regions have increased, making schemes less likely to stack up. The biggest barrier to buying new sites, however, is construction costs. Outside London, labour costs are slightly lower but they make up a larger proportion of the overall price of a development, Nekhamkin explains.
Therefore, when labour costs rise, the regions are hit hardest. Couple rising costs with lower rental prices and buying new sites is now not a viable option for Inhabit, she says, and it won’t be until at least next year.
Part of the problem is Brexit. If the government agrees a deal that does not overly restrict immigration and allows the UK construction workforce to grow, Inhabit may well be back in the market. However, Nekhamkin adds: “If [the Brexit deal for construction] is dire then I don’t see us wanting to buy anything. Land values could drop 50%, but because they’re a small piece of the overall cost, projects are not going to be viable.”
Nekhamkin hopes this “doom-and-gloom view” is not realised. The company’s goal is to expand and that requires acquisitions. If the conditions are right, she knows the cities she wants to go into.
“[We’d go into] Edinburgh, Newcastle, Southampton - cities with large university populations, a young demographic and encouraging economic indicators,” she says. “[But] where we go next will be driven by where we see attractive opportunities. If it ends up being in Belfast or Cardiff, there’s nothing to stop us going there and then doing Edinburgh when an opportunity comes up.”
We’d go into cities with large university populations, a young demographic and encouraging economic indicators
The company is happy to buy a second site in a city where it already owns one, she adds, such as Birmingham and Bristol. Scotland, too, is a definite focus: because there are fewer schemes of scale than in England, contractors will compete harder for large projects and therefore offer more competitive prices. That has been the case for Inhabit’s two sites north of the border, which are valued at around £100m each.
However in some cities, says Nekhamkin, there remains a brutal planning system, in some cases with particular inflexiblity relating to space standards.
“In these cities, due to differing touch points it took months and months to end up in an agreeable position,” she says.
The regions in general can prove tricky, Nekhamkin says, as central government’s enthusiasm for the BTR sector has not trickled down to individual planning officers in local authorities.
“In many cases, [planners] don’t really understand BTR,” she elaborates. “There’s a lot of chatter and people repeat the same BTR speak, but until you’ve experienced it you don’t fully appreciate what it is and what it can be.”
Be that as it may, Inhabit has been able to battle through that system to secure planning for five of its schemes - Aberdeen, Glasgow, Leeds, Liverpool and Manchester - and it is working through planning in Birmingham and Bristol. The schemes vary from 150 units to 1,000, all aimed at the higher end of the market.
There are those that are sceptical of the higher-end BTR model. The thing that renters value above all else is price, they say, so premium schemes might struggle. Nekhamkin disagrees. She thinks renters are willing to pay for the right product. To that end, Inhabit makes sure its apartments are as good as they can be, she says, working with an interior design firm to ensure they are a cut above the rest.
Renters are already paying a lot to live in cities, she reasons. “When you take into account the add-ons they’re shelling out for, including gym and parking and other services, then you end up looking at an apples-to-apples comparison,” she says. “We offer the same overall pricing with a better-quality apartment, professional management and amenities.”
To keep costs down for renters, Inhabit’s developments are designed to be relatively “amenity light” and focused on a few “core” offerings: a lobby, a communal lounge, rooftop green space, a gym and a convenience store if the location calls for it. If residents really want a cinema room or a communal dining room, they will ask for one, Nekhamkin says, at which point the company will take a view.
But perhaps the most striking thing about Inhabit is the size of its staff. It has just six full-time employees working out of a London office - almost unthinkable for a company with such grand plans.
“It’s not because we’re resource strapped; it’s just that we’re very careful,” Nekhamkin says. “We don’t want to hire people for the sake of hiring. We’ve put a lot of thought into what positions are the crucial ones. We think that for the activity we have going on now, given the support of external consultants, it’s a good team.”
It will have to be if Inhabit is to fulfil its ambitions. At 3,500 units, its BTR pipeline is one of the largest in the UK. That is a lot of responsibility sitting on the shoulders of half a dozen people. If Nekhamkin pulls it off, Inhabit won’t remain one of the property industry’s best-kept secrets for long.