National real estate adviser Bidwells last year announced ambitious plans to double the size of its business by 2030.
It considers operational living and the "hotelification" of real estate a cornerstone of its future growth, and has made series a senior of high-profile hires and acquisitions to bolster this.
Oliver Heywood joined as a partner in October last year in its expanding capital markets division, following the hire of chief operating officer Kelly Bream and build-to-rent veteran Iain Murray and his former team at Cortland Consult.
CoStar News caught up with Heywood, Murray and the head of capital markets and London office, Andrew Groves, to discuss how those ambitions will be met and the wider market.
Paul Norman: Bidwells has laid out ambitious plans to aggressively grow the business. Where does operational living fit into these plans? Where does Bidwells see the biggest opportunities in the operational living sector in terms of BTR, single-family housing, coliving, PBSA, senior living?
Andrew Groves: Living advisory has always been part of Bidwells’ core offering, beginning with purpose-built student accommodation when the asset class was still nascent and we had been giving advice to colleges in Oxford and Cambridge to support their requirements. Our recent 2030 strategy expands on what we see as being the opportunity in operational living across all its asset classes, where we are leveraging our knowledge, our expertise and our multidisciplinary team to service complex mandates.
On the capital markets side, we have been actively broadening our capability, supported by the acquisition of Iain's team at Cortland as a leading authority in build-to-rent. Oliver with his experience means we go into other areas in operational living with brand new strings to our bow, supported by Kelly Bream, our COO, who also has deep experience in the operational sectors through founding VervLife.
Importantly, we are following our clients with whom we have good relationships and this is the direction of travel we see them going in. We have acted for many institutions who have been underweight in the residential market particularly when you look at their exposure in the US and Europe. And all of them bar none have ambitions to grow in this space.
Bidwells' stomping ground traditionally has been the East of England, the South East and London, but this strategy is national? What geographies does Bidwells perceive to offer the most opportunity as it relates to the operational living sector?
Iain Murray: One of the things I have brought in is a history of working nationally, across the whole of the UK, and indeed Spain and Ireland. I was already on the ground with existing services, and it is extremely exciting to expand the bandwidth of what we are doing at Bidwells.
What is hot at the moment is undoubtedly PBSA, which is a very busy market. Coliving too is an exciting market, and Oliver is working on a number of instructions. Multifamily and build to rent is a bit slower with considerations around the Building Safety Act and viability interrupting a trend of strong activity in the pipeline but the most liquid clients have faith and continue on where others have paused. We see single-family housing as going through the roof with so many masterplans for large-scale developments on the table. There is opportunity to be very early to that.
From a capital markets perspective, we are beginning to see portfolios and initial stock trading starting to happen. L&G is selling on a couple of its developed projects. We are seeing evidence of secondary markets trading well. Institutions need to know an initial five-year period of investment will be realised and the development can be moved on to a longer holding portfolio. The office-to-residential market is pretty strong in part because of the many different carbon agendas. It is less costly to not build a whole frame again so secondary office buildings in the centre of towns are fit for repurposing.
Oliver Heywood: The evolving coliving market which has pre-dominantly developed in London has seen newly opened schemes outperform business plans and forecasted rental projections. The lack of supply and significant imbalance with vast demand that has developed post-COVID through the shift in tenant living requirements and behaviour means coliving schemes have been able to cater for this change and shift in rental requirements. In addition, we are now seeing schemes come forward in key regional city locations which is hugely positive for the sector and hopefully continued growth and performance will follow.
In London, DTZ Investors’ Folk platform has been delivered through [joint venture] and direct development deals with developers and has been operational for a period of time and traded very well. There are other growing portfolios such as Dandi, Mason & Fifth and Gravity who have created a brand which is very exciting for the evolving market and are targeting different areas of the tenant market.
In 2025, there are some very exciting schemes in the City of London which will be presented to investors by way of a forward funding structure, many of these are office-to-residential conversions rather than new build schemes. From a planning perspective, many of the up-and-built operational coliving schemes are sui generis. There is however a developer-operator shift in looking at delivering C1 [use class] unrestricted stay schemes, due to the market and tenant demand for quality short-term and long-term tenants. We are now seeing the hotelification of residential and operational real estate as it evolves to meet tenant lifestyle requirements.
We have seen through the development of the build-to-rent market, operators and developers cater to all areas of the tenant market which provides choice, competition and difference of product. All of which appeals to a variety of investors. We are now seeing this in coliving as operators look to grow their brand in strategic locations whilst increasing their portfolio and units under management.
IM: Short stay in multifamily was initially seen as a mechanism to assist in the lease up and stabilisation of assets. And now it is seen as a part of the overall solution because the income per square foot is healthy, and it does diversify the tenures you have in your property.
AG: East Anglia, the South East and through to London we have built strong granular knowledge and that is why institutional clients come to us. A London-based practice will have a wider knowledge, but that deeper local knowledge has been a USP for us. With the operational living side, though, it is a service that is nationwide, and the skillset is much more focused on looking at the build-up of the cost base. You can take it out of a specific geography and apply across the whole country. That is the same with our planning, built environment and rural services.
IM: If you look at BTR emerging, it started in London and then moved into regional cities and then into tertiary and secondary markets. There was a burgeoning market and then with COVID and the Truss Budget participants retrenched. Where we have had problems is in Glasgow and Edinburgh with rent caps, which clearly institutional and hedge fund funding cannot work with. It has ruled out the institutional sector because it rules out rent growth.
Manchester as a market is quite mature but not fully saturated, while Birmingham has the largest pipeline of any city, and in Leeds there has been some adjustments to rents because five projects opened all at once. But that supply is controlling the rents – they will stabilise and be absorbed. There are lots of geographies such as Bristol, and second cities such as Norwich, Leicester, Newcastle, where the interest is high.
OH: On the single-family housing front because of our connections and knowledge for instance in science and technology in-house, we can provide full services advice to residential landowners in unlocking schemes and advising them through consultancy, planning and investment structures. Our USP is that we can act as a one-stop-shop in this regard.
How can the government address the supply shortfall? What role does operational living real estate have in this?
IM: From the new government it is encouraging that housing is very high up the agenda. We have had far too many housing ministers in recent times, and none have lifted housing delivery up as far as we want to see it.
The government has said it wants to build a million and a half houses in this parliament and that requires a fairly aggressive extension of the existing delivery. I would prefer it if they focused on increasing the run rate on an annual basis as the very large number for the parliament does not recognise that the ramp needs to go up.
AG: What we need to see to help the supply side take off, and developments, is gilt rates and the cost of borrowing coming down. The margins on these schemes are quite thin and need a sensible level of profit on cost within development appraisals. The cost of borrowing at the moment means projects will be delayed.
OH: There are two sides of the coin. There is planning because it is hard to get developments through and on the flip side the macroeconomics. With the yo-yoing of gilts and [the] SONIA [benchmark rate] it is incredibly hard for projects to get funded or built because of that arbitrage and delta between what the vendor is ready to sell an asset at and what a vendor is prepared to buy at. But the focus of a lot of investors is on the sectors we mentioned.
IM: One of our specialities is we are very data-driven. We are as well armed as possible when we put projects together. If you take some of the statistics, there has been a 50% drop in planning in all areas of operational living sector and that means there is less sausage meat in the machine so less sausages in the future. We think this creates an opportunity for people with a different risk profile or appetite to bring schemes out of the ground where the market has improved and there is an undersupply.
We are working with clients who are exposed to this data to make decisions about how they go forward. We are also working with projects to ensure they are building safety compliant and ESG-compliant to attract funders and funding at a discount. A building may look shiny and new at the moment but in future investors will look at the pricing adjustment between the two types of assets and we are generating data to understand what that will be and helping clients project forward their own rents.
AG: The market as a whole was relatively sluggish in 2024 and I think everyone is very keen to get going in 2025. There is a lot of money wanting to invest generally and a number of people holding on to development projects will see bright lights on the horizon.