‘Flex’ renting for BTR and PBSA ramps up

Build-to-rent, student housing and co-living operators are witnessing an explosion in the use of flexible rental strategies as they evolve beyond traditional leasing practices. Lavanda, a property management software platform, surveyed 1.3m homes across the UK, US and EU. Its clients include Greystar, Abrdn, Blackstone, Nuveen, Starwood Capital, Hines, Invesco, Quintain and Homes for Students. The Global Flex Report 2024 report found that firms whose portfolios accounted for 85% of the BTR and student beds in the study plan to increase the use of shorter leases this year.  According to Lavanda, historically, operators, asset managers and investors have been reluctant to deviate from their core business models because of perceived risk, a lack of expertise and inflexible technology.  This meant student accommodation was only ever occupied by students, and BTR buildings were only ever let on long-term leases. The report said this left operators in a no-man’s land of depressed yields whenever the market moved against them, financing costs rose or demand softened.  Challenging the status quo However, Lavanda found that an ongoing shift in rental demand post-pandemic, alongside evolving property management technology and tools, is challenging the status quo. The respondents noted that adoption of flex tenures in the BTR sector alone has been particularly rapid, with uptake surging dramatically over the past 12 months. While operators of 23% of BTR supply increased short or medium-term rental activity in 2023, companies responsible for 92% of inventory plan to boost flex activity this year. The meteoric rise highlights the accelerating adoption of flex leasing strategies across the broader alternative residential sector and suggests the apartment industry is recognising that the post-Covid increase in remote and hybrid working models has also sparked a dramatic shift in demand for more flexible accommodation options.  Flex enables owners and operators to maximise occupancy and revenue by adjusting rental terms, prices and lease lengths based on demand, tenant needs and market conditions. This makes operators more agile, catering to different types of occupiers as demand fluctuates and taking advantage of short or medium-term rental demand to: give renters a wider choice of accommodation options within the same building; fill voids, particularly during the summer months in the case of student accommodation;  stabilise assets in the lease-up phase; create all-weather risk profiles within single assets; better navigate complex planning constraints and unlock deals. The report said that, although the BTR industry is earlier in its transition to flex rental strategies than the student accommodation and co-living sectors, it also has the most to gain with the broadest range of use cases for flex. These extend to the creation of dedicated serviced apartments, corporate accommodation and “guest suite” offerings to accommodate visiting friends and relatives. Prospective longer-term tenants can also “try before they buy”, making it a valuable marketing tool.  Growing popularity Flex strategies are expected to contribute at least 10% of net operating income across 70% of the BTR sector in 2024, according to Lavanda’s report.  In the student accommodation sector, flex is already a major contributor to NOI, with short-stay programmes in the summer months providing an important secondary revenue stream when students are away. Based on the number of units represented, 88% of the student accommodation sector leveraged short stays to some extent last year, with 22% seeing at least 20% NOI contribution. Some 47% of the student accommodation sector increased its short-stay activity in 2023, with 43% more expecting to increase their current level of activity in 2024.  Operators accounting for 72% of the multifamily industry and 70% of student accommodation also expect the development of “flex buildings” to accelerate in 2024 — typically blended asset types designed to tap into a broader rental demographic by offering fully flexible leases.  Fred Lerche-Lerchenborg, chief executive at Lavanda, said: “As rental demand and accommodation preferences continue to evolve rapidly post-pandemic, and with technology increasingly shaping the future of the built world, we’re hugely excited to launch the Global Flex Report 2024.  “The report sets out to chart the impact of short- and medium-term renting upon the investment and the operating strategies underpinning the global apartment industry, surveying owners and operators of 1.3m multifamily, student accommodation and co-living units across Europe and the US. “The goal of the report is to inform all industry stakeholders, from residential investors, operators and analysts to journalists and policymakers, so that they can more easily track and understand some of the key trends underpinning the living sector. These include the pace of adoption of emerging flex operating strategies, the emergence of a new flex asset class and the key technologies and innovations that will power it in the future. “The pace of adoption highlighted in this report is incredibly exciting. The shift to flex strategies is accelerating across the residential sector to the benefit of renters, while at the same time creating more agile, more resilient all-weather assets.” Image © High Level/Shutterstock