[+] Come Together: UKO Riding Rental Resurgence Wave

It was a sure way to prick up the ears of private developers. But well before federal treasurer Jim Chalmers unveiled the national housing accord to deliver a million new homes by the end of the decade, the call of Australia’s housing affordability crisis was already being heard loud and clear. And with the property sector enduring some significant challenges of its own, the move to more defensive development strategies was on. “We’re getting double the inquiries from developers than we were 12 months ago,” co-living and build-to-rent operator UKO co-founder Rhys Williams told The Urban Developer . “There’s huge interest from developers because there are some challenges with build-to-sell and other asset classes, be it retail or office. “A lot of institutional investors are now very eager to own a piece of rental accommodation because it proved to be an extremely defensive asset class through Covid. And they’re very keen on the supply and demand fundamentals of rental housing as well.” ▲ Sydney-based UKO is currently opening at least one co-living or build-to-rent asset each month. Part of the Veriu Group, Sydney-based UKO—with a rapidly-growing portfolio of more than 20 properties under management—is currently opening at least one co-living or build-to-rent asset per month. “At this stage, we’ll probably be doing that until the end of 2024 by which time we expect to be operating 2500 apartments,” Williams says. “So, it’s quite a busy space and has become quite interesting because you’ve got the federal government starting to focus on housing initiatives.” Nevertheless, he says there are still planning and tax roadblocks significantly hampering the much-needed growth of rental housing supply. “I think it’s good that this issue has got the ear of the government but if you really do care about the plight of the renter and you care about affordability and creating better living environments then it needs to be well executed. “It’s the same old story—you really need the federal and state government planning authorities working together to actually create supply and limit some of the roadblocks that penalise feasibilities and stop supply dead in its tracks. “We’re getting 2000 inquiries from potential tenants a month, so we know there’s significant demand. And so I think it’s really important that the planning authorities start to embrace build-to-rent and co-living as a form of housing that creates a supply that leads to affordability.” Institutional investors, including superannuation funds, have endorsed the national housing accord announced last month as part of the federal Budget. ▲ UKO partnered with Sasco Developments for its 18th property, in Sydney’s city fringe suburb of Alexandria. And, according to Williams, there is “no lack of desire on the part of the institutions to own build-to-rent and co-living assets”. “[These assets] are starting to be proven up by UKO and other operators across Australia, so they’re now beginning to see the returns they can anticipate and it’s starting to be seen as a de-risked proposition. “Rental returns across the portfolio have increased by 20 per cent post Covid with occupancy rates reaching record highs.” UKO is achieving a stabilised 98 per cent occupancy rate for its Sydney assets. Across its portfolio of more than 1000 apartments it is generating average weekly rents of $700 to $1500 for build-to-rent (45-120sq m room size) and $490 to $650 for co-living studios (22-36sq m room size). The company’s co-living model—that currently accounts for up 70 per cent of its business—comprises fully furnished apartments with utilities, high-speed Wi-Fi and access to a range of communal areas all included in the weekly rent. Communal areas include a chef’s kitchen, social lounge, co-working area and private meeting space connecting to an outdoor courtyard. “There's a big shift from renters of all walks of life wanting to move into these managed communities,” Williams says. “We expect demand to remain strong in the post-Covid environment driven by positive net migration and a significant undersupply of rental accommodation, which we don’t expect to resolve in the medium term. “Going forward, we probably see more growth in build-to-rent but also mixed-use assets—half co-living studios, half build-to-rent.” Its first mixed-use property is already in the pipeline and earmarked for a 7800sq m site at Meadowbank in Sydney’s north-west. Comprising 162 co-living studios, 132 build-to-rent apartments and a retail centre, it will be UKO’s fourth project with Sasco Developments. Another key target of the national housing accord is to deliver “well-located” housing supply to enable people “to live close to where they work” and Williams says UKO is experiencing strong demand for co-living and build-to-rent housing in suburban locations. ▲ An apartment in UKO’s Alexandria property. “There was a perception that co-living and build-to-rent would only be attractive in CBD and CBD-fringe areas,” he says. “But our experience now is that in much more suburban areas, there’s a huge demand for co-living and build-to-rent as well.” “That’s backed up by some of our newer properties in places like Kogarah, Balmain and Botany where previously people may not have thought that a co-living asset would be appropriate, but the market has spoken and these properties are being rented extremely quickly. “We see a huge growth in the suburban co-living and build-to-rent assets in all capital cities, and also in satellite cities like Newcastle or Wollongong or Geelong.” The latest data indicates Australia’s housing crisis has hit unprecedented levels in all cities and regions with the nation’s residential property rental vacancy rate sinking below 1 per cent. According to SQM Research, the country is now in the grip of its worst rental squeeze for more than 16 years. “Selling apartments is tough at the moment and with debt costs going up it will remain tough but the rental market is strong,” Williams says. “The national issue is lack of supply. “Clearly, there's not enough rental accommodation and so to bring co-living and build-to-rent into places such as Newcastle, which has a vacancy rate of half a per cent, would be a huge win for those communities in terms of creating supply and keeping rents affordable.” UKO—a specialist in property management for rental assets from 50 to 250 units held in one line by private developers, family offices and institutional investors—has well and truly heard the call. It is embarking on a national expansion with a strategic rollout of co-living and build-to-rent properties currently under development in major capital cities as well as regional centres. “We’re in advanced discussions on a number of assets around Australia,” Williams says. “It’s all about creating this new wave of supply of what I like to describe as a better form of rental housing for everybody.” You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

[+] Come Together: UKO Riding Rental Resurgence Wave

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