In a market where headline rent often indicates performance, the Living Sectors are learning to innovate by considering how ancillary income can not only enhance the bottom line but also improve service levels for residents.
Firstly, it is about getting the basics right. In PBSA, it is market standard to assume a share of revenue from laundry services, while Build to Rent does the same with car parking or pet premiums. However, innovation isn’t just about clever new initiatives, it’s also about ensuring nothing is being left on the table with these market standard ancillary income options.
Unfortunately, AREA too often find that assets are underperforming. Either the revenue share does not align with market standards, or opportunities not fully maximised. In fact, only recently, we secured a lease for client with a first generation PBSA residence, involving car parking spaces leased to a UK operator.
These spaces were surplus due to a shift in student behaviours, no longer reliant on private car usage. Prior to AREA’s involvement, these 25 spaces were underutilised: with the operator sparsely leasing to residents upon occasional enquiries. With strategic management, income from these spaces has increased from a £2k to £32k a year.
So, what are these more creative or innovative ways to generate or enhance ancillary income and achieve competitive advantage?
Surplus basement space can be effectively utilised by leasing it to dark kitchens, which serve takeaway only restaurants and delivery services like Deliveroo. Dark kitchens emerged during Covid-19 as a way for the hospitality industry to continue earning income and have gone from strength to strength. As well as earning income form leasing underutilised basements, offering a discount to residents who order through these kitchens can be an excellent way to integrate the scheme with a resident VIP benefits package. Additionally, leasing spaces to growing local businesses also supports ESG initiatives.
A significant number of residents leave their rental properties due to a need for more space. Offering storage for hire in underutilised basements can serve as both an income protection and a revenue generator for Build to Rent properties. Additionally, in student accommodation, additional fees could be charged for onsite storage during the summer months when students don’t have a tenancy but plan to return for the next academic year.
Savvy operators can also monetise underused spaces in lobbies, lifts and other high footfall areas via digital advertising boards. These boards can be leased to local or national businesses targeting the building’s core demographic. The AREA team have successfully implemented this strategy with clients, resulting in a substantial revenue share.
Amenity spaces and multi-purpose function rooms can be hired out for a charge. Initially you might consider this controversial, but it doesn’t have to be. Our experience in Operational Oversight shows that residents are unlikely to use a private dining room mid-morning, mid-week. However, these times could serve as perfect opportunities for community events such as parent and babies’ meetings or the local catering school classes. These activities not only generate revenue but also enhance resident engagement and social partnerships.
Secondly, is it unreasonable to charge for the use of key amenity spaces during peak times and/or charge for cleaning and maintenance? Our Oversight role has highlighted that charging a small fee helps manage bookings, reduce cancellations and enhance the perceived value of these spaces, distinguishing them from regular resident lounges or workspaces.
Offering discounted gym membership during off peak times can integrate the scheme with the local community. Collaborating with local professional trainers to conduct classes can also turn spaces into income-generating amenities, especially if the provision of equipment and space are of high quality.
In-house maintenance teams can enhance the tenant experience by offering furniture assembly service for a set hourly fee, or operators could offer pre-designed furnishing packs. This service is particularly beneficial for overseas residents relocating at short notice for work or students travelling with limited luggage who may need furniture, bedding and kitchen essentials. Providing these options not only helps new residents settle in comfortably but also fosters a sense of belonging. Long term, if residents feel at home, they are more likely to stay, reducing turnover and increasing the core occupancy level.
Housekeeping along with other additional concierge services such as dry cleaning is an obvious service add-on but often isn’t utilised. A simple set cost per hour can prove very popular and can enable site staff to achieve enhanced pay.
Self service offerings are also proving popular. Vending machines are no longer just sad confectionary and drinks dispensers sat in the corner of a corridor but partnerships with brands such as Cook and Ben & Jerrys work well in both PBSA and Build to Rent developments. Additionally innovative operators have formed partnerships with local bakeries to provide items available via vending machines with a share of the revenue.
Whilst utilities are typically included in the rent for PBSA, there can be various add-ons worth considering generating additional revenue. For example, offering EV charging at Build to Rent schemes or enhanced Wi-Fi packages for the best speeds/download use, both adding value for residents and increasing income for operators.
Clearly, we are not advocating increasing costs at a time when affordability is a major concern for residents, but, when there is additional demand for enhanced spaces, services and utilities beyond what is typically supplied, it is reasonable to apply a share of revenue that covers cost and generates an increased income for the landlord.
What is critical, as an investor, is that the questions are being asked, that the norm is being challenged, a forensic approach has been applied to the budget to highlight opportunities, and innovation is at the centre of revenue generation. That’s what delivers competitive advantage.
