In uncertain times for real estate, the build-to-rent (BTR) sector is proving resilient in terms of yields, rents and investor appetite.
One of the reasons may be that while we have often thought real estate is a good inflationary hedge, over recent years this has not been the case in most segments.
But residential rents have a very strong correlation with inflation and in particular wage inflation. With CPI in high single digits and wage inflation rising, rents are growing.
I am regularly asked whether the economic squeeze is likely to affect our residents’ ability to pay higher rents and we are mindful of this at Grainger. Wage growth in our core customer group has exceeded rental growth, particularly our main cohort of young professionals, who are developing their careers and achieving salary increases ahead of national wage inflation. While house prices continue to rise, Knight Frank/Oxford Economics data shows that the proportion of household income spent on rent and bills is still far lower than the long-term average, providing a further cushion.
Grainger focuses on the mid-market and in our resident assessments we ensure our residents can comfortably afford their home, working on the basis of one third of income spent on rent. In reality, the range is actually lower, typically sitting at 27%. While nationally, 73.3% of private renters are employed, compared with 59% of homeowners, that figure is higher within Grainger. Our residents’ salaries are growing. They are paying around 27% in rent and living in new, energy-efficient buildings – hopefully protecting them from the worst impacts of rising costs.
With energy costs a key concern for many, the age and energy efficiency of most BTR developments is appealing. Some 87% of our rental homes have an EPC rating of ‘C’ or above, and 50% have a ‘B’ rating or above, compared with 2% in the private rented sector.
Our homes are very energy efficient, and with JLL data showing the average annual energy bill of a home with an EPC of ‘G’ as much as £3,246 higher than one with an EPC of ‘A’ to ‘C’, this is now more of a determining factor for renters.
With people increasingly focused on total cost of occupation and bills, our residents are also thinking about the added value of our amenity offering, on-site gym membership and free high-speed broadband, which are included in the rent, providing further savings. Resident lounges and co-working spaces also provide a good alternative for those working from home.
That said, we appreciate these are difficult times for many and we always treat our residents as individuals, adopting a bespoke approach wherever possible. As we did throughout the pandemic, we have a dedicated in-house team to help and support any residents who are struggling in the current economic climate.
As a nation, we find ourselves in uncertain times and the community aspect of BTR and the professional landlord will come into its own.
As operators, we will continue to focus on delivering a high-quality service, while also offering residents additional support and measures to help them and protect their wellbeing.
Helen Gordon is chief executive of Grainger