Moving Forward: London’s Private Rented Sector 2012 – 2013

Neil Young

Image: Neil Young, CEO Young Group & Young London

Every December, our guest authors take a break as I commandeer the final Privater Rented Sector Update of the year. It gives me the chance to reflect on the previous twelve months and look forward to the challenges and opportunities that the year ahead might bring.

This time last year I summarised my thoughts for 2012 and, looking back, I’m pleased to report that against a backdrop of economic concerns, the Private Rented Sector (PRS) performed in line with expectations. Those invested in the PRS saw further income improvements, continued low costs of finance and performance returns in excess of other investment asset classes.

What I find particularly gratifying is that I feel the PRS is finally coming of age. You’ll see from Young Group’s strapline that we’re ‘Shaping the Private Rented Sector’ – and have been for the past 10 years – so it’s particularly pleasing to see that the sector may be maturing.

While the Government has been making a concerted effort to actively drive investment, particularly institutional investment, in the sector for two to three years, it’s been characterised by much talk and little action. However, I have seen a real change in momentum through 2012, and this has been reflected in the growth of Young Group and the services that we provide to our clients.

We provide consulting advice – which spans all aspects of the PRS from strategic, operational considerations and financing, through to the day-to-day asset management of PRS holdings – to our clients, who range from private individuals to corporates, institutional investors to Housing Associations.

Advising New Entrants
As Government grants available to registered housing providers are curtailed, housing providers are looking to develop revenue streams from the Private Rented Sector to support future development activity and supplement their running costs.

Young Group is providing consultancy services to the sector, sharing our in depth knowledge of the sector and customer-centric approach, advising on strategic service development and set-up as well as day-to-day service delivery. This is a business stream that has seen significant growth over the past year.

Institutional Investment Becomes a Reality
In addition, 2012 has seen the first large scale institutional investment into the sector with the news that at least 1,000 of the homes at East Village E20, the former Olympic Athletes’ village, will be made available through the PRS. Stuart Corybn, Chairman of Qatari Diar Delancey, outlined his vision for the neighbourhood in the Autumn/Winter issue of our PRSupdate Publication. All eyes will be on East Village as it will be seen as the blueprint for institutional investment, not just in the UK, but across the globe.

As institutional investors gain traction in the sector, Young Group is on hand to provide strategic consultancy and also delivery of asset management services. This day-to-day asset management encompasses lettings and on-going property and resident management. These services are delivered either directly through Young London, our lettings and management business, or through a white-labelled service for larger clients.

Continued Growth & Investment
As Young Group’s consulting service has grown, we’ve invested significantly in further growing our business, bolstering our existing departments whilst also bringing in additional skill sets that enable us to offer even broader advice, such as block management. It’s gratifying to be moving the business forward, providing services which share the best practice that we’ve worked hard to develop through Young Group.

At the same time, retaining our focus on the innovative mechanisms that deliver frontline services through the multi-award winning team at our agency business, Young London.

Leading by Example
Young Group works hard to remain at the forefront of the PRS, delivering a level of professionalism and service that stands above others and this has been recognised yet again this year.

One thing that sets Young Group’s advice apart is that we practice what we preach. The success of Young London’s operation is testament to the team, their training, processes, operational systems, knowledge and tangible evidence of our approach to the sector. In fact, three additional members of the team have achieved their final NFoPP Technical Award qualification in the past two months alone, with the rest of the team already qualified or working towards gaining their ARLA membership.

Young London was awarded ‘Best London Lettings Agency’ at the RICS International Property Awards for the second year running and we’ve also won awards this year from The Sunday Times for Customer Service, Property Management, Marketing and Lettings and been recognised at the RESI Awards for our Asset Management services and Lettings.

Looking Ahead
So, despite continued economic concerns across the EuroZone, I hope I’ve shared how 2012 has been a year of significant progress for the PRS and for our own businesses. However, what does 2013 hold for the PRS and the wider economy as a whole? Below, I’ve highlighted key areas of interest and, despite not being one for hard and fast predictions, given my thoughts on how I see the next twelve months unfolding:

RENTS
Rents have risen during 2012, but at a decreasing pace. I expect rents to continue to come off, flattening in 2013 as affordability pressures begin to be more keenly felt.

HOUSING SUPPLY
Housing supply is still falling far short of demand, especially in London, as development finance remains hard to come by. Supply is so far behind the volume of new homes required that despite pockets of increased supply – for example East Village in E20 which will bring 2,818 new homes to market in 2013 – there will be little immediate impact on the imbalance.

RENTAL DEMAND
Demand for privately rented property remains high. We’re also seeing that residents are staying in their rental accommodation for longer, renewing rather than moving. I expect this to remain a characteristic of the market throughout 2013 as residents become increasingly price sensitive and expect to be able to negotiate.

FINANCE AVAILABILITY
With no major changes to the lending landscape, I expect the availability of finance to remain broadly similar to that seen in 2012. Lenders have little appetite to lend and there are no signs that lending criteria will be relaxed in the near future.

EUROZONE
2012 saw concerns over stability within the EuroZone spread as the Arab Spring added to stability concerns. The EuroZone, and indeed global stability will, remain a concern throughout 2013 as economies across the world struggle through the economic slowdown.

However, these concerns should be tempered by the comfort that London remains one of the most politically and economically stable capitals on Earth, actively attracting ‘safe haven’ foreign investment. This is particularly true for the residential property sector where we see overseas money continuing to pour into London from those seeking capital protection and diversification.

ECONOMIC INDICATORS
In this month’s Autumn Statement, the Chancellor made it clear that the UK economy remains weak and that austerity measures will now remain until 2018. It’s perhaps no surprise that I expect the GDP to remain flat throughout 2013 as appetite for investment continues to be lukewarm. With regard to inflation, given the Bank of England’s focus on the target of 2%, I would expect that inflation continues to fall and hits lower levels than we’ve seen for the previous two years.

BASE RATE
With the economy remaining sluggish and recovery fragile, I would expect that there will be little scope for the Bank of England to change interest rates over the coming year and would not be surprised to see base rate still at 0.5% next December.

In summary
The sector is attracting interest and investment from institutions and new commercial entities, some of which are being born from social housing providers. The PRS, of course, also remains the asset class of choice for individuals seeking to bolster their own pension provision. Professionally minded businesses in the sector are continuing to raise the bar with regard to standards and I’ve seen at first hand the progress being made by agencies right across the UK, having been invited by The Sunday Times to judge the Estate Agency of the Year Awards this year.

All in all, I think it’s appropriate to reiterate my earlier statement that the PRS is certainly coming of age and Young Group is still actively Shaping the PRS during its maturity.

Finally, I’d like to take the opportunity to wish you a happy holiday season and a prosperous 2013, and look forward to catching up with many of you personally in the New Year.

Neil Young ACMA CGMA MARLA
CEO, Young Group and Young London

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About Neil Young
Chief Executive, Young Group

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