PRS: Rich pickings or too unstable?

The new breed of institutional PRS blocks is offering investors rental premiums of 9.3% above the local rate on average, but the first research into stabilised developments shows prices are hugely variable. Rents range from -6.8% to 22.9% above the local market average for a one-bed flat, according to new data from JLL. Its research analysed seven completed schemes around the country that have been open for at least a year and are more than 90% occupied. While rents were 9.3% above the Rightmove local average, rental growth was 3%, compared with a national average of 2.4% from the Countrywide Letting Index. However, the average 3% growth figure masked the fact that three of the seven schemes underperformed the local average. Going forward, the market could stabilise as landlords see the benefit of offering competitive rates to avoid empty flats and ascertain what the best rental levels are. “Much of it comes down to voids,” says Nick Whitten, director of residential research at JLL. “If you have a flat void for a month, you have lost a twelfth of your annual income, not to mention marketing, administration and letting costs. In some instances, dropping rents will help secure a letting while lowering management costs.” Management Management costs were 26.6% of gross rent, lower than some had feared, though still slightly higher than many developers budgeted for – with the net margin being around 25%. This is lower than the IPD average of 32%, however. But as schemes are rented for longer management costs are likely to decline and as more schemes are brought online there will be efficiencies across portfolios. The research indicated that newer purpose-built schemes have a lower gross-to-net leakage than non-purpose-built. About the tenants The average age across schemes was 31, with the average salaries ranging from £32,000 to £43,000. For the moment the research is limited in size and scope, but as further iterations are produced JLL hopes it will grow. There is growing demand for quality data on the PRS, both from developers and councils. Whitten said: “Persuading investors to part with their data was not an easy task, but the industry has been crying out for analysis of this nature. It will help with viability calculations as well as informing planning authorities in their deliberations for potential new schemes. “However, this is just the first step and it is imperative that this work is repeated with bigger sample groups and longer periods of data if we are to truly understand the significance of build to rent.” To send feedback, e-mail alex.peace@egi.co.uk or tweet @egalexpeace or @estatesgazette