Corporate landlords cautiously optimistic after first six months of RRA
Impact of Renters’ Rights Act not as bad as feared for professional investors
More than four in five (82%) corporate landlords looking to expand
Analysis of data from LRG’s Living Markets division reveals that after six months in force, the Renters’ Rights Act is yet to have any significant negative impact on the corporate landlords it works with.
Across the Corporate Lettings division’s client base, which comprises landlords with a typical portfolio size of 50-plus properties, arrears of more than 30 days have fallen compared with the six months before the Act, decreasing from an average of 3.3% to 2.7%. Encouragingly, annual rent rises have also increased slightly to 6.0%, up from 5.7%.
“There was some concern about the Renters’ Rights Act prior to its implementation, but thus far landlords at the larger end of the spectrum seem to have been relatively unaffected,” said Adam Hills, Client Services Director at LRG Living Markets.
“Both rent levels and arrears have improved and we’ve not seen the uptick in tenant turnover many feared when tenancies became periodic from day one. Initially, many believed that the end of fixed terms could lead to tenants moving in and out within short periods of time. Although it’s still too early for us to report definitively on any changes in annual average tenancy lengths, so far we’ve seen no evidence of this happening across our portfolio of landlords.
“With the transition having been smoother than expected and landlords owning property in company structures emerging unscathed from the recent Budget, it’s unsurprising that many corporate investors are looking to expand further.
“Some 82% of our clients are actively planning to scale their businesses, with one aiming to increase its portfolio from 500 to 10,000 in the coming years.”
The Corporate Lettings figure aligns with research released by Handelsbanken earlier this year, which found that 84% of professional investors were looking to grow their portfolios, up from 54% the previous year.
Some of the expansion of larger landlords is a result of investors purchasing properties from smaller landlords looking to exit the market. Research from The Deposit Protection Service in March pointed to a continuation of the much-discussed consolidation of the private rented sector, with the percentage of landlords owing one to two properties falling from 57% to 50%, while the percentage of those owning 11-plus rose from 5% to 8%.
However, Adam said that some professional landlords are aiming much higher. “We’re seeing many investors looking for larger-scale opportunities such as entire freehold blocks, commercial buildings ripe for residential conversion and larger portfolios owned by retiring or exiting landlords, as opposed to focusing on single property purchases.”
He added that across the board, investors have also become more discerning when it comes to yields. “In the past, many considered yields of 8%-plus to be acceptable, but we’ve seen this rise to 10%-plus over the past year as astute professional landlords build in the current market uncertainty and account for any future impact of the changes to rental legislation.”
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