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Tuesday, December 10, 2019

What the BTR sector can learn from tech

By Arthur Zargaryan (London, U.K.)

Built to Rent (BTR) has been taking over the real estate market and pushing both traditional house builders and institutional investors into this emerging sector. BTR brings along a major paradigm shift, a move from a primary focus on the physical space, to placing increased importance on the provision of a service.

Why would someone pay what might seem a premium for a BTR unit over a regular flat? The answer is almost always the same – convenience. This trend for convenience and bundling is happening across many industries, including tech, where all-you-can consume content providers offer a new level of service to users. While the underlying economics of tech and real estate companies are different, there are still many transferrable lessons. Here are a few.

Economies of scale

Bundling services is only possible at a certain scale. Netflix for instance is only able to make its operation profitable because it has 158 million users worldwide. Real estate can also benefit from economies of scale and bundled experiences.

BTR works best at large scale, with the average size of a completed site in 2019 encompassing 133 units. The average size under construction is 245 units and for schemes currently in planning this rises to 325 units. Larger schemes are better able to support the cost associated with operating such buildings, allowing landlords to negotiate better per unit deals for utilities, furniture and more.

Significant benefits also exist when expanding a portfolio geographically and creating a network of buildings. As people move from city to city, change jobs or start a family, they can always remain within a provider’s BTR ecosystem. This reduces customer acquisition costs while increasing occupancy rates.

Big Tech Data in BTR

Gathering and analyzing the right data can greatly benefit the Built-to-Rent sector, as it has the world of tech. Netflix, for example, uses the data it gains from millions of users to understand what content becomes popular and why, and consequently creating its own shows and movies in its in-house studio.

BTR has huge data opportunities, covering both how physical assets behave, as well as how tenants interact with a building. BTR developments need to be built to a standard that minimizes maintenance and repair costs, while offering attractive design. It is therefore crucial to find materials, appliances and furnishings at the best best price to performance ratio. Key metrics such as power usage or life time of an appliance are crucial in calculating costs and informing future fit-out decisions.

The second data point covers how tenants interact with a space. Key card access or sensors on furniture can track the movement of tenants throughout the building in an anonymised manner. This allows landlords to calculate the occupancy of different common areas and understand how amenities are used. For example if tenants aren’t using spacious common areas as much as anticipated, additional qualitative data collection can help operators understand how to improve spaces in the current and future developments. Capturing and analyzing available data benefits the developer / operator’s bottom line, as well as improving the tenant experience.

Brand Premium

Brand premium charged on BTR is not necessarily achieved through physical design or prime locations. While these help, brand premium is built by putting into place certain processes that ensure better customer service and facilities.

Services such as a concierge or receptionist can add significant value towards the brand premium. Some of the most requested services from front of house staff are parcel management, key management, and security. Parcel Tracker, an app developed by Deepfinity, which is part of Avison Young’s Entrepreneurs in Residence scheme, ensures parcels can be processed more efficiently. Thanks to the simplification of the internal process, up to 70% of staff processing time is saved.

There are a range of software applications such as Parcel Tracker that introduce processes that are simple to implement and can be scaled up from a single building into an entire portfolio, ensuring great and reliable services to tenants and further building upon the brand premium.

Arthur Zargaryan is Co-Founder of Deepfinity Ltd and an Entrepreneur in Residence at Avison Young’s London office

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