Fuelled by limitless institutional dollars and VC funds, the earnest, socially conscious mission statement of doing well by doing good, spirited CEO’s within the so-called Generation Rent space have amongst others, taken on the independent landlords in recent years and appear to have been on to something. Although these corporate landlords may not have brought every independent landlord down completely, the co-living / co-working leaders have established themselves in the UK market, causing international and domestic investor demand to shrink by as much as 80%, and demand for expensive sale exhibitions in Asia and the Middle East to wane. The rise of the co-living and co-working landlords, and change in growing appetite from consumers to rent rather than own, has underpinned the very thesis of the rental revolution. Peering over the fence, the likes of Airbnb and Uber have been rewarded with billions of investment dollars at sky-high valuations while the stock market awaits their IPOs. But what impact will our new heightened sense of hygiene and vulnerabilities have on the valuations of these behemoths, and how will it play out for the mega landlord operators within the UK residential development space?
Up until as recent as a month ago, the idea of sharing your most prized possessions, including a home, car, or even a taxi, illustrated an ideal that could heal itself from a society ravaged by out-of-control consumerism, restore authentic communal bonds, reduce carbon emissions and other environmental impacts, and finally replace the outmoded hierarchies of corporate life with new, networked economic structures where everyone could be their own boss. But the good intentions of yesteryear are quickly evaporating to reveal a markedly different reality.
Many of us might find ourselves reevaluating what we choose to “share”. How we travel, where we do our work, where we stay, who we have to stay. Clearly not everyone will take such grave precautions, and perhaps many people will not even blink. However, it would be foolish to assume that everyone will go back to normal once all this is over. Will budget hoteliers relish a renaissance in popularity, as consumers choose post-pandemic conscious corporate operators over the perhaps lesser regulated Airbnb’ers? Will the Airbnb hosts actually want to host at all? Will the likes of Zip Car continue on their growth trajectory, when its users have little idea what a cars previous journeys or occupants were? The idea of a “rent revolution” might have provided solace for these CEO’s but how will it fair amidst growing concerns surrounding public hygiene and the knock-on economic impacts of a global pandemic.
A close friend shares a rented apartment in Clapham with two other tenants. All three of them have contracted COVID-19 at some point in the last month — most likely from one-another. Thankfully all three have only developed mild symptoms and will make a full recovery, but clearly their situation is as a result of their environment. Unfortunately for many Londoners, they have little control over their environment. After all, my friend and her flat mates share that flat because it’s affordable, and the luxury of having their own apartments would cost two or three times as much. But what about being in a similar predicament where you do have control, and therefore options? What if you are paying comparable rent to live in a building where you are encouraged to share in return for state of the art communal facilities, or perhaps complimentary Wi-Fi or utilities being included in the rent-roll. The kitchen, the sitting room, the gym, the chill out zone suddenly have dwindling appeal as having your own space becomes even more valuable.
Many young professionals and perhaps ambassadors of don’t own anything and #generationrent everything, might find themselves reevaluating the importance of what there outgoings are, especially if faced with significantly disproportionate direct debits compared with a new furloughed sized pay packets. And it’s not just the yuppie’s, businesses both small and large, might find themselves questioning the real value the trappings of a WeWork style space, after rediscovering that working from home, actually isn’t not so bad after all. Especially with the “wizardry of modern technology..!?” Will the car lease payments suddenly highlight an excessive and unnecessary reach for Instagram majesty. Was the 0% credit option on the sofa the right choice when perhaps paying upfront would have been perfectly possible at the time? Will budget conscious gym bunnies maintain their Joe Wicks HIIT sessions or Peloton spin classes in place of the returning to the gym?
Many of the co-living operators initially deployed the standard David-and-Goliath narrative by lobbying for government budgets to eliminate competition by way of stamp duty, or mortgage interest relief. In the media, co-living portrayed itself as the defender of the humble tenant, standing up to bully landlords in a stupendous flight-to-quality. But what will happen when tenants begin serving notice on their super flexible tenancy agreements in a dash for their own, non-shared homes? Sure, the independent landlords could face similar problems today, but the worst case scenario might be that the landlord negotiates a mortgage holiday with the lender, and agree reasonable terms with the tenant to tide everyone over. It’s the prospect of such issues at scale which become could become problematic.
When you start to visualise how these two scenarios will play out, it becomes clear how a shift in tenant behaviour could move away from sharing anything at all. At the lower end, demand for cheap and affordable bedrooms within larger properties are likely to remain bullet proof. It’s improbable that there ever will be an alternative or ones resolve will ever remain robust enough to resist the lures of owing a sports car. Albeit using somebody else’s money. Could single lets and independent landlords see a surge in demand? After all, replacing a communal ping pong table that you share with countless millennials in place of your very own kitchen, might not be so bad after all. Could “owning” a car for more than 3 years ever become comprehendible? Will Millennial’s and Zillienial’s find that their reduced outgoings and inability to spend or go on holiday fast-track them to having a deposit? Especially given the liquidity in the mortgage market utilising Help to Buy where buyers need just a 5 % deposit.
It doesn’t require an economics degree to realise that COVID-19 will consolidate a multitude of markets significantly. Could long standing independent landlords resume their place as the backbone of the London rental market? Could the UK market, and perhaps international markets such as South East Asia provide a surge in demand, and who have the bandwidth to deal with inevitable bumps in the road. Either way, contrarian buyers and investors who are capitalising on today’s property market, may be onto something.
Written by Ben Morris
