As urbanization pushes more working professionals into city cores worldwide, Greystar Real Estate Partners is betting these potential residents would prefer to rent rather than buy apartments at record prices.
From Santiago to Spain to Shanghai, the Charleston, South Carolina-based firm and its investors see opportunity in the nascent rental housing industry, one that will only continue to grow in 2018 and beyond, executive managing director Wes Fuller says.
“We are not creating renters per se, as most of the major global cities already have a large proportion of existing renters within their population, but lack a professional rental housing option as the existing rental housing alternative is renting a is renting a condo unit from an individual owner which is a highly fragmented market. You can certainly see the concept of professionally-designed and managed rental housing growing into a global asset class.”
In the UK, for example, build-to-buy residential is an established market, compared with build-to-rent’s early-stage development. Student housing has also become an accepted property type for investors. In 2018, Fuller predicts deliveries of first generation build-to-rent assets in the UK and a growing development pipeline.
Underpinning this growth, in addition to resident demand, is institutional capital demand, which has long recognized multifamily in the US as a core investment strategy and is now looking at pursuing it in other countries. In some cases, investors’ experience in the US has translated to other markets: many of Greystar’s partners in their international markets, for example, were existing investors in the firm’s US multifamily platform.
“Global institutional investors will be a big driver for what happens in the rental housing space worldwide,” Fuller says. “They often have extensive experience in the US multifamily market or international student housing market and they desire a similar low volatility, income-producing rental housing asset within attractive international cities that exhibit commonalities within the US’ major cities. In most markets, there is a housing affordability challenge due in some part to under-supply so demand is less of a concern. When there are no assets to acquire, however, you have to develop the assets to gain exposure.”
New entrants’ considerations include not only the usual calculations of supply and demand, but also what operational capacity exists locally.
“In terms of constructing the product itself, we are faced with the challenge of building the operating platform to manage the assets. It takes a lot of time, technology and people,” Fuller says, particularly compared with build-to-buy assets. “That complexity shouldn’t be ignored. Operational intricacies of rental housing assets are an imperative element to the success of the project.”