By Richard Valentine-Selsey, Senior Residential Research Analyst, JLL
There is an ever-growing list of amenities that can be provided within Private Rented Communities (PRCs) ranging from the functional parcel storage room or bike spaces to the aspirational private dining and cinema rooms. But what impact do they have and can they result in a rental premium?
Pushing the rental envelope
The inclusion of amenities is expected to allow PRCs to establish a rental premium over the current local market level.
To unpick this, JLL Residential Research recently undertook analysis of 25 PRC schemes across London, which turned up some interesting results—these schemes are, on average, achieving a rental premium of 11% over their respective local markets.
However, it is difficult to accurately define what proportion of this premium is specifically linked to amenities. Part of the challenge is the immaturity of the UK PRC market. Currently, many tenants are unable to value the benefit of access to a communal lounge or cinema room due to never having had the option in their rental properties before.
The experience of the more mature US multifamily market, however, indicates that this will not always be the case.
The US National Multifamily Housing Council undertook a survey in August 2015 that collected responses from 120,000 private renters across the country looking at ‘what apartment renters want’. As part of the survey respondents were asked what amenities they were interested in and importantly how much more rent they would expect to pay for these.
The results showed that tenants, saw a direct link between access to amenities and additional rent; examples include paying an extra $40pcm (£32) for a fitness centre and $34pcm (£27) for additional onsite storage. These equate to premiums of 4.3% and 3.6% respectively of the US median multifamily rent, which according to the National Multifamily Housing Council is $940pcm (£755).
The US example indicates that as the UK PRC market matures and tenants become accustomed to the service and amenity offerings then they will start to attribute a value, allowing operators to begin charging a rental premium for their inclusion.
If not yet, when?
This is all well and good, but when might the UK market reach the point at which tenants are able to attach a premium to amenities?
As mentioned earlier, part of the problem is that very few renters across the country have been exposed to PRCs and therefore are not able to value the benefit of amenities. Of the nearly 900,000 private rental households in London, less than 1% currently live in a PRC. However, looking forward, there are 10,200 PRC units under construction and a further 16,800 with planning permission in the capital, which means once they are all completed 4% of London’s rental population will be living in a PRC.
The exponential rise of PRC development across, not only London, but the country will mean that more of the rental population will experience living in a fully equipped PRC and begin to understand how much amenities are worth.
So while the UK still lags the USA in being able to attribute rental value to amenities, we are firmly on the way and with every completed scheme we move one step closer.