Grainger’s Gordon on investor appetite in the BTR boom

Grainger has taken advantage of new investor appetite for build-to-rent with a surge of disposals as part of its asset recycling strategy. The FTSE 250 investor inked £52m in deals in the six months to April, driving a 30% uplift in sales profit compared with the same period a year earlier. Grainger typically recycles between £50m and £75m a year, but last year sold around £100m in assets. Momentum has carried on throughout the pandemic. For many commercial real estate executives, such an uplift in activity might seem an odd move – who would choose to sell in a downturn? But Grainger chief executive Helen Gordon says stable performance and fresh popularity for BTR has seen a range of buyers chasing investment opportunities. “People are coming at the BTR sector from individual small family offices right the way to the big institutions,” says Gordon. “Because residential has done so well and so many folk are raising money to do it, we’ve actually had strong sales.” “Hanging on to income” Grainger’s disposals have been focused on smaller, sub-100-flat buildings in less urban locations, for example an asset in Martlesham, East Anglia. “We sell for three main reasons,” says Gordon. “One of them is scale: these were small blocks and management intensive. The second is geography: if it doesn’t sit within our cluster. The third is specifications: we have very strict criteria. “A lot of property companies just hang on to income. But I am determined that we get a really high-quality portfolio. There is nothing wrong with the homes, they may suit somebody else, but in the longer term, they are not appropriate.” Like most of its peers, Grainger traditionally had to buy smaller blocks. Now it is moving to larger, purpose-built schemes. Over the past year, the company has splashed more than £177m on schemes in Birmingham and Guildford, with a £38.4m purchase Derby also confirmed this month. “We have a clear, focused strategy in terms of which regions and cities we are willing to invest in – strong fundamentals and the supply/demand imbalance in terms of rental growth,” says Gordon. Summertime surge Grainger’s BTR portfolio rental growth has been somewhat muted during the pandemic. Overall, the landlord recorded like-for-like rental growth of 1.7%, with 1% across its BTR properties and 4% across its regulated tenancies stock. With a spotlight on BTR, Gordon says the regions have exhibited the strongest growth over the past six months, up by 1.7% compared with 0.5% in London. Still, this vastly outperforms the wider rental market, with both Zoopla and the ONS recording negative growth in the capital due to drops in higher value assets. “This reason behind that is that we focus on the mid-market,” says Gordon. “Grainger has also been working hard with our customers, so we have real insight and we’ve not been pushing up our rents at this time because we prefer people to stay with us and be supported in their homes.” Grainger has, however, seen occupancy dip to 89% against a target of 95-97%. “There are areas that have suffered more than others, I would say this is in the market in general,” says Gordon. “It is more the east London properties with access to Canary Wharf and the City, because it hasn’t obviously been as fully occupied.” At the other end of the scale, Brook Place in Sheffield has a waiting list for flats and no vacancy for some time. The newly opened Gatehouse Apartments in Southampton is now 41% let, just six weeks after it launched. And Gordon is hopeful for strong performance in the peak letting months over the summer. Grainger has 1,021 flats completing this year, with three new openings – two in London and one in Leeds. “This year is a big year for delivery,” she says. “What we are seeing in the market is a real uptick for the summer. We think that we will be really well-placed for a strong summer to autumn.” Sales and strong income will continue to fuel Grainger’s ambitious growth plans. The BTR portfolio is currently at £1.3bn, following a 0.9% bump in valuation over the last half year. Grainger also has a £2.1bn pipeline of 8,851 homes. But it doesn’t end there. “The institutional professional landlord is still only 3% of the market,” says Gordon. “I think you’ll see a transition as buy-to-let landlords are selling out of their properties. That is a real market to go out to.” To send feedback, e-mail emma.rosser@eg.co.uk or tweet @EmmaARosser or @EGPropertyNews