Research carried out by UNISON ahead of its annual conference in September showed a collective hole in local authority finances amounting to more than £4bn for 2025/6.
This follows a government decision earlier this year that nineteen local authorities in the worst economic circumstances would be allowed to sell property and other assets to pay for services, in a break with the rule which bans councils from selling assets to cover day-to-day spending.
So how receptive is the property market to local authority assets and where do the opportunities lie?
Clear evidence of demand
Despite some negative press regarding the private rented sector, larger professional landlords are continuing to expand their portfolios as the residential property market continues to deliver an excellent return on investment. Handelsbanken’s annual survey of professional landlords is a useful indicator of sentiment in the market. Its 2024 survey showed that residential flats are 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 is confident, with 62.5% planning to increase the size of their portfolio over the next 12 months (up from 59%).
Currently, supply in the private rented sector is outweighed by demand: according to Rightmove, the number of tenants in the UK increased by 6% in 2022 but this coincided with 50% fewer properties being available. We have seen similar figures play out across our LRG owned local lettings brands and we expect the Renters’ Rights Bill to exacerbate this trend.
And it’s not only residential properties that address this demand. Commercial property – whether office, retail or hotel accommodation – can also help meet the considerable demand for homes.
Opportunities presented by change of use legislation
Many investors are taking 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 an office building or retail unit (which now no longer needs to be long-term vacant to qualify for PDR), converting it to residential use and then either selling or managing it, benefitting from the substantial value uplift that residential property now offers over commercial.
A recent example of a successful change of use scheme 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.
Conversions created through permitted development rights, and therefore with minimal external alternations, can have limitations. But if done well – as Medway Developments has done in this instance – it can be extremely effective in utilising redundant office buildings and creating much needed rental homes. As an investment, is provides significant value in one or a small number of units.
Another example is Peartree House, a former office block in Harlow, Essex. LRG instructed to sell the 26 apartments and we are confident that with an annual yield of 6.58% it will have strong investor appeal.
Many local authority owned 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 seeking planning consent for change of use to residential or doing so under Permitted Development Rights (a planning route which is generally quicker and less expensive than a full planning application). Boyer advises clients that full planning permission is required if a property owner wishes to make structural changes in converting it for residential use. However, the relatively recent option of permitted development rights (PDR) can also provide permission for change of use without the need of a full planning application.
The popularity of newly converted schemes is demonstrated in HomeViews’ 2023 Build to Rent report, which surveyed over 36,000 residents and 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.
Increasingly, change of use is extending to the burgeoning ‘alternative’ residential sectors including student accommodation and later living – again increasing the potential market for local authority properties of all kinds.
The private rented sector shifts in favour of the ‘professional’ landlord and Build to Rent
Partly in response to some amateur landlords leaving the sector, the requirement for professional investment in residential property is more pressing than ever. A major piece of research for the BPF published earlier this year found that £250bn of investment is needed in Build to Rent (BTR) alone in order to meet future rental demand. That demand has been brought about by high house prices, greater geographical mobility and many people choosing the BTR sector as a life-style choice.
No fewer than 5m households (one fifth of all households) live in rented homes, of which 90,000 live in BTR and 4.9 million live are in the buy-to-let sector, forming the majority ofthe private rented sector (PRS) today. As circumstances including government legislation, 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.
Many BTR properties, specifically in urban areas, are converted commercial buildings. Furthermore, BTR is increasingly seen as a particularly safe investment opportunity, because it is able to spread risk through a blend of tenures. BTR appeals to investors over outright sale not only because of the ongoing return on investment but because due to lettings being faster to secure than sales, development timeframes can be shortened and profits delivered faster. The shift towards more rental properties also allows for site-wide infrastructure to be brought forward sooner, expediting the creation of a new community. This results in a value increase at an earlier stage in the development lifecycle.
For investors, there are other distinct advantages of BTR suburban communities. In our 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. In BTR, on the other hand, a variety of property types (residential, commercial, retail and leisure) exist within a single portfolio, creating a combination of immediate sales revenue and long-term rental revenue with the potential to spread the investment according to the market conditions.
Portfolio investment services to support a growing market
As the portfolio investments market (unbroken/broken blocks or multiple properties owned by the same entity, typically a company or an investor, as a single package) grows, services that enable the efficient management of managed portfolio investments are developing.
In this ‘professionalised’ rental sector, it’s vital that sellers and investors benefit from quality, timely advice and an understanding of the intricacies of the market conditions. At times, making the right investment choices requires expertise on planning, surveying, management and lettings advice. This has prompted companies such as LRG to offer the full package, all under one roof, supported by enhanced technology: an online platform which showcases property portfolios to the investment market and provides 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.
This range of new services both provides professional support to the new breed of landlords and encourages many more to enter the market – again, increasing the likelihood that they will opt to purchase either residential portfolios or properties suitable for conversion to residential.
Conclusion
The investment sector is clearly in no doubt as to whether the residential property sector will continue to escalate in value and increasingly the sector is being supported by a raft of relevant services, which are in turn encouraging further investment. Consequently sales of council property should be well received and deliver a good return.
