The Increased Appeal of Portfolio Investments

Despite changes in the private rented sector, wide ranging sources show that larger professional landlords are continuing to expand their portfolios, as the residential property market continues to deliver an excellent return on investment.  

For example, Handelsbanken’s 2024 survey showed that residential flats were believed to be the most in-demand sector over the next 12 months, with 63% property investors ranking flats first in a list of options (up from 53% doing so in 2023). Residential houses rank third, at 61.5%, up from 46%. Overall, the mood was confident, with 62.5% planning to increase the size of their portfolio over the 12 month period (up from 59%). 

No fewer than 5m households (one fifth of all households) live in rented homes, of which 90,000 live in Build to Rent (BTR) and 4.9 million live are in the private rented sector today. But as circumstances including the Renters’ Rights Bill, additional regulations (including the increasingly real prospect of EPCs of C or above being required of all landlords) and interest rates bite, some amateur landlords are leaving the sector. The 1:49 ratio will certainly move in favour of the ‘professional’ landlord.  

And so increasingly both individual investors and companies are drawn to managed property investments, which generally take the form of portfolio investments (unbroken/broken blocks or multiple properties owned by the same entity, typically a company or an investor, as a single package).  

The return is even greater when the investor takes advantage of the recently extended permitted development rights (PDR) which allow for the relatively easy and cost-efficient conversion of commercial buildings to residential. I have seen some fantastic profits achieved by clients buying a commercial property such as an office building or retail unit (which now no longer needs to be long-term vacant), converting it to residential use through PDR and then either selling or managing it, benefitting from the substantial value uplift that residential property now offers over commercial.  

A recent example is Chatham Waterfront, which sits alongside some purpose built BTR apartments managed by LRG. Chatham Waterfront is undergoing a very successful retrofit of an office building which will provide over 106 high specification apartments for rent. While conversions created through permitted development rights (and therefore with minimal external alternations) can have limitations if done well – as Medway Developments has done – they can be extremely effective in utilising redundant office buildings and creating much needed rental homes.  

Commercial buildings, specifically retail, hotel or office premises (some of which may have originally been built as residential) can be well suited to residential use with very few changes required. Frequently these are attractive, perhaps historic, buildings, ideally located in popular areas close to amenities. Our planning consultancy, Boyer, advises on change of use, specifically whether to use PDR or a full planning permission. The latter is required if a property owner wishes to make structural changes in converting it for residential use.  

The popularity of newly converted schemes is demonstrated in HomeViews’ 2023 Build to Rent report, which surveyed found that office to resi conversions achieve the highest resident approval ranking for all criteria, including design. Repurposed schemes, the report explains, are often located in central locations with easy access to local amenities and tend to be well managed with responsive maintenance. 

In the ‘professionalised’ rental sector an in view of the wide-ranging options available, sellers and investors need quality, timely advice and an understanding of the intricacies of the market conditions. Making the right investment choices requires expertise in planning, surveying, management and lettings advice. This is why our sector increasingly offers the full package, supported by enhanced technology: online platforms can showcases property portfolios to the investment market and provide data to enable customers reach information quickly and efficiently. 

Whereas previously most forms of investment were managed through stockbrokers and asset managers, advances in technology – such as the data rooms available on our Portfolio Sales website – make it very simple for individuals to buy into a professional service while also retaining considerable autonomy in their investment.  

In LRG’s 40 years’ experience as lettings and management agents, we have seen institutional investors disregard investment in individual residential properties on the basis that they are too fragmented and management-intensive. But in contrast, emerging forms of portfolio investment brought about by change of use and Build to Rent are easily managed and risk averse – which is explains which investor interest in this sector has increased so significantly in the past few years.