Rent Rolls - Will 2022 be a repeat of 2021?

The Rent Roll market in Perth has mirrored the Property market for 2021. We have seen multiples being paid firming to record levels, a lack of stock and large and small operators looking to acquire. This has seen the market rebound from the soft market of 2018/2019 to now be well above the previous highs experienced in 2014/2015.

Whilst the COVID-19 pandemic did throw some challenges to the market with rental moratoriums, relief in commercial tenancies and other factors that have seen some impact on income in the early months, they were only short term.  The business model itself maintained good earnings throughout this period and can be operated remotely far easier than some other businesses.

Property rents have increased circa 20% to 25% over this period and the vacancy rate dropped to below 1%, which was previously 3.5% just prior to the occurrence of COVID. At its worst, the vacancy rate had hit 7% back in 2015/2017. These changes have  significantly improved the cash flows and profits of these businesses.

When we combine the above with an increase in multipliers from $2.20 to $2.75 in pre-COVID times,  to now a minimum of $2.50 up to $3.50 in some cases, this equates to a significant increase in the overall capital value of rent rolls in Perth and indeed across the State.

The only dampening factor is that some Rent Rolls have had pressure from sales and are losing numbers in their Rent Rolls and having difficulty replacing them. With increased rental returns and a stronger property market we consider that investors are starting to return to the market and believe that this attrition may decrease over time.

Operators are continuing to chase growth by acquisition as they see the strong benefits to their bottom line through scale. We believe the strong market conditions will remain in the foreseeable future. Well run Rent Rolls are achieving returns in excess of 20% and even higher when amalgamated into an existing business. Therefore, with current funding below 5% we can see why this strategy is being incorporated in numerous businesses.

The commercial market has also rebounded well and there are a lack of commercial Rent Rolls being transacted. Operators are actively seeking Rent Rolls to amalgamate and once again we are seeing record multiples being paid. Rent Roll brokers are reporting that the next good commercial Rent Roll is likely to be sold on an ‘expression of interest’ basis and will test the market levels.

In our professional opinion, and taking all the above factors into consideration, we expect to see a continuing strong market for Rent Rolls in Perth and also extending to some WA regional centres. The lack of supply and the appetite for businesses to get scale through acquisition is unlikely to change in the short to medium term. Our multipliers in Perth are still below those in the East Coast in most instances and we are  achieving better fees in Western Australia. In my opinion, we will see new record levels of multipliers tested locally in Perth in 2022.

The cautionary note is that the market pays for well run, well documented property managements. If this is not the case, then they can be heavily discounted. It is also incumbent on the seller and buyer to work closely with each other to create the best opportunity for all managements to be transferred over. If this process is not capably managed, then the slippage in the sale can be high and hence no one wins in the process. This outcome can come at a significant cost to the seller and a disappointed buyer that does not end up with the number of properties he had expected.

If you require any specialist advice regarding Rent Roll values or if you are looking to acquire or dispose of a Rent Roll in this market, please do not hesitate to contact Rod Davidson. With over 20 years’ experience in Rent Roll valuations and advisory, Rod is well placed to provide quality guidance in this specialised area of property services.

Rod Davidson
Director Valuations
— Perth Property Valuers
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