Grainger remains confident in face of buy-to-let competition

The listed residential landlord is preparing for its “next big milestone”, the first phase of completions at its £100m Clippers Quay scheme in Salford, as Grainger continues to push into the build-to-rent sector with an £850m investment pot.

Speaking to Place North West, Andrew Saunderson, director of transactions and special projects, said Grainger had had “a busy run in the North West” since 2014, when the investor agreed to fund Amstone Developments to build the 614-flat Clippers Quay. Sir Robert McAlpine is on site, and the first tranche of apartments are expected to be ready for occupiers by the third quarter of this year.

Andrew Saunderson Grainger

Saunderson: “As players exit the market and build-to-rent assets begin to trade, that’s when it gets exciting”

In the time since Clippers started on site, Grainger has also strengthened its foothold in the region, acquiring The Tribe, three refurbished PRS blocks in Ancoats and New Islington, and agreeing to forward fund the £80m development of 375 flats on Salford’s Gore Street, backing a joint venture between UK Land & Property and contractor Sir Robert McAlpine. The PRS element of The Rock in Bury, which includes 230 flats, was bought last autumn. Grainger also has a historic portfolio of apartment blocks in Liverpool, including Kings Dock Mill.

Grainger has £850m to invest in the build-to-rent sector by 2020, and so far has made headway investing £670m of that pot. Long-term, Saunderson said Grainger’s growth strategy would see it exit its older stock, and recycle the income into acquiring and developing more bespoke rental blocks.

All other activity aside, the completion of Clippers Quay is “the next big milestone for Grainger as business” said Saunderson. “Getting the launch right is key, and that is now a priority.”

The 614 flats are all due to be complete by summer 2020, and while Clippers is just one of many PRS schemes set to be delivered in Manchester over the coming years, Saunderson is confident that Grainger’s quality of amenity and management service sets its offer apart from the buy to let investors who are increasingly prevalent in the market.

“We’re making sure the amenity offer is ready, which means that when we launch it’s there and not just promises. The general public are seeing the benefit of properly managed properties with the security of three-year tenancies, and fixed rent increases.”

While the Grainger portfolio spans a mix of assets in the North West, it is yet to make a foray into the central Manchester market, with the Gore Street site probably as ‘prime’ as the investor is likely to get, according to Saunderson.

“We consider Gore Street to be our central Manchester offer. Yes, it’s in Salford, but just cross the bridge and you’re in Spinningfields, Manchester’s answer to Canary Wharf, and arguably you can’t get more central than that.

“We’ve not done the higher end schemes, everything in our portfolio is sub-£25/sq ft to rent, at Clippers Quay, down to £12/sq ft at The Rock.”

Part of the reason for Saunderson’s caution is the high land and rental values being demanded around city centre sites, not just in Manchester, but also in Liverpool.

“There are a lot of opportunities but schemes are currently aggressive, we’re not seeing stabilised stock come through yet. In places like Liverpool, rental values and the cost of construction means that viability remains hard.

“People are suggesting rental values that we just don’t see, and the more aggressive may struggle with leasing.”

Clippers Quay CGI Feb 2018

In terms of the next wave of opportunities, while Grainger is “always appraising and always looking”, the investor is happy with its place in the market, said Saunderson.

“I’m very happy with where we are – our schemes aren’t quite prime Manchester and are going to benefit from investment in the surrounding areas.

“There’s undoubtably a lot of stock coming forward, and I would worry if I was a buy to let investor with a flat in a block with a lot of other buy to let investors, as tenants may leave to go to managed blocks. I believe the pressure will be in the buy to let market, which of course for a professional investor is a good thing.”

As the first purpose-built rental blocks are completed across the country, Saunderson is now looking to the next phase of the asset’s development. “The BtR market today is tomorrow’s stabilized income – if it’s purpose designed and built. While there’s a lot of players in the market, some will build, stabilise and then leave – and it’s when the assets begin to trade that it gets exciting. At the moment, everyone just wants a stake in the game.”

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