Centralised Purchasing: The Future of the Rental Market

The BTR market in the UK is growing at an exceptional rate, and it’s predicted to be worth £544 billion once the market reaches full maturity. Despite the rapid growth, it’s worth remembering that the sector is still very young here.

In order to keep costs down, a thorough understanding of the industry is needed. That experience only comes from working in a market which has already reached maturity — such as the Multifamily market in the US.

We’ve seen how centralised purchasing keeps costs to an absolute minimum in residential buildings across the Atlantic. To replicate the same success seen overseas, the UK needs a streamlined purchasing process.

What is Centralised Purchasing?

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Centralised purchasing is how the most successful BTR & PBSA properties in the UK reduce operational expenditure. It’s the exact same way the Multifamily market in the US operates, a market which is worth over $2.9 trillion and has already found the best methods to reduce operating costs.

Instead of having individual departments manage their own purchases, all goods and services are procured by a single entity. By utilising centralised purchasing, you leverage your buying power to its fullest effect. Bulk buying goods and services leads to massive cost savings, as vendors are always looking to sell in larger quantities because bulk selling also reduces their direct costs without curtailing outputs.

It’s not just across one building that operators can save time and money. The right purchaser will create savings across every residential building that falls under your company’s banner and even beyond.

One of the greatest misconceptions in our sector is that BTR and PBSA developments are competing against each other. The real competition is with the traditional private rental sector.

Let’s take a look at the recent numbers. There are:

  • 4.4 million households with one or more adults in situ renting in the UK, which is equal to 34.5% of the adult population
  • 2.7 million private landlords
  • 53,000 BTR units, which is less than 1% of all housing in the UK
  • A further 80,000 BTR units in development or planning stages

Large-scale BTR residential buildings aren’t on the same level as standard buy to let properties. A combined force of BTR developers can compete against PRS though if they work together.

As outlined above, BTR is still in its infancy in the UK. Right now, anything that’s good for the sector should be rolled out to every company that’s in it. If centralised purchasing across multiple companies saves everyone time and money, it means more efforts can be put towards promoting the co-living lifestyle in general. In turn, this makes BTR more well-known among people looking for a new place to live.

BTR will soon take the upper hand from PRS in regards to rent and expense ratios through a good centralised procurement process. The savings that can be made will make running a development significantly more lucrative than a portfolio of buy to lets.

As an example, there are many steps taken when awarding and performing general maintenance on a flat, plenty of which cause a lot of hassle in PRS for everyone involved:

  • The resident contacts the property agent
  • The property agent contacts the owner (usually a foreign investor)
  • Agents then contact one-off contractors to bid on the work
  • Access needs to be granted
  • The bids come back
  • The owner approves the work
  • Work is completed
  • The agent is billed
  • The owner pays

It’s a lot of work to get an electrician to service one flat. In comparison, pre-approved electricians authorised to complete work in a residential building for every unit will have no call-out charge and will stick to pre-approved rates to ensure they keep their lucrative contract for all the units.

What are the Benefits of Centralised Purchasing?

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Save on Operational Expenditure

First and foremost, centralised purchasing saves you money. Buying in bulk will always lead to a discount rate. As an example, TV service providers such as Sky, Virgin and BT will be a lot more interested in providing coverage for every unit in your residential building as opposed to just a few units.

But while providers will compromise on price to secure an exclusive contract, there’s always more you can do to make additional savings.

Having one entity take charge of purchasing saves regional staff a lot of time and money. Strictly speaking, they’re not hired for procurement, and their efforts should be put to much better use, namely achieving 100% lease-up and making sure residents’ needs are met, increasing the likelihood of renewals.

The Fjeld Consulting team are not only expert negotiators, but we have a list of reputable partners who provide services for some of the biggest BTR and PBSA residential buildings in the UK.

Everything you need for your building and to improve the lives of your residents can be obtained quicker and at a lower rate through centralised purchasing, so it’s always worth exploring it as an option.

Take Ownership of Your Contracts

Keeping on top of contracts can be difficult. Multiple vendors have their own reporting styles and management suites, and of course, the more vendors you use, the more contracts you have to balance.

As part of Fjeld Consulting’s centralised purchasing service, we take ownership of contract negotiations, renewals and terminations. This ensures:

  • All the important information is communicated clearly and concisely to you and your team
  • You get the best price from the start
  • Your value as a long-term customer is leveraged effectively
  • You won’t be automatically renewed when your existing contract comes to a close, meaning we can find an even better deal when the time is right
  • If you choose to renew service contracts, we will have plenty of data to make suitable amends to service level agreements

Develop a Better Partnership with Vendors

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Centralised purchasing means a coordinated team takes control of buying all goods and services. This means they spend a lot of time speaking to vendors. And the more the two sides stay in communication, the more the partnership develops.

This has a range of benefits for your residential building. Your purchaser will be able to discuss at length about the latest products and developments with suppliers. Not only does this ensure the exact product or service on offer meets the needs of you and your residents, it also means they can discuss alternative solutions that may work better or are more cost-effective.

A better working relationship can also lead to greater discounts. There’s a lot to be said for nurturing all available leads, and a supplier who sees you as a partner may be willing to drop the price further. In some cases, providers will want to trial new products or services in a real environment. By nurturing the partnership, this could result in your building getting the latest products at a greatly reduced rate.

Implementing Centralised Purchasing Effectively

Centralised purchasing is the future of the rental market. When you consider all the cost reductions alongside the premium rate you charge for providing high quality services to residents, BTR & PBSA become even more lucrative.

This level of forward thinking is what’s needed in order to remove traditional buy to lets from the top position in the private rental sector.

Fjeld Consulting already has the knowledge and expertise to do this from our time spent working in the American market. We know exactly which steps to take and the contacts who can make it happen.

To make centralised purchasing a success for your residential building, get in touch with a member of our team today.

About the Author: Grace Morgan

Grace Morgan
Grace is our principal consultant at Fjeld Consulting. She leads a team specialising in mobilisation, process improvement, procurement and ancillary income across Europe.

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