Real estate service provider CBRE emphasises the importance of project stabilisation for Build to Rent. The company has found that project stabilisation is crucial for assessing the sector’s potential and viability.
CBRE’s Valuation and Advisory Services Living Sectors team has released insights into what it believes are the core components of stabilisation that renders a property successful.
- Occupancy Level: One of the primary indicators of stability is achieving and maintaining a high and consistent level of occupancy. While the threshold may vary, a generally accepted benchmark is an occupancy level above 85%. This demonstrates both the desirability of the property and its ability to attract tenants.
- Rental Rates: Another crucial aspect is the establishment of rental rates that are consistent, stable and predictable. This includes factors such as various typologies, incentives (if any) furnishings, car spaces and ancillary services. Setting the right rents from the outset is of utmost importance.
- Professional Management: Efficient and effective professional management is essential for project stabilisation. The presence of well-defined processes, systems, and experienced management professionals contributes to the smooth operation of the property. When a property is efficiently managed, it requires no additional support and has a proven track record of consistent costings as well as performance.
- Lease Renewals and Turnover: Consistency in lease renewals and turnover rates is a significant indicator of project stabilisation, particularly during cyclical market conditions. A consistent average fixed lease term demonstrates reliability and a stable tenant base.
- Residents: An established community and a clear resident profile within a property is a testament to its stability. When a property attracts and retains occupants who contribute to a vibrant and engaged community, it solidifies its stability and success.
- Cash Flow Stability and Predictability: Cash flow stability and predictability are essential for assessing the long-term viability of a property. While rapid market movements and resetting rents can pose challenges, studying historical performance can inform and offer insights into the probability of future stability.
In any emerging market, the stabilisation process can be one that is challenging, particularly when there is a lack of existing operation assets to draw upon market acceptance of the product and stabilisation strategy.
The market currently also has challenges relating to above average residential rental growth and movement in expenses such as statutory costs, utilities and insurances.
By striving for stabilisation, real estate professionals can secure consistent performance and profitability in a dynamic and ever-changing market.
