Watkin Jones has shifted its business to capitalise on investor demand for rental assets with a new affordable housing business, large build-to-rent schemes and upcoming mixed-tenure regenerations.
The student developer has doubled its PSBA and BTR pipeline during the pandemic, but said new land opportunities will deliver further growth as it expands to new markets.
Chief executive Richard Simpson told EG: “These are reasonably big numbers for a business of our size. That pipeline has a realisable value of £1.5bn when we come to sell it. We have made real material progress in the evolution of our pipeline.”
Simpson added that as Watkin Jones has an ambition to be “the market leading developer-manager of residential for rent”.
Some £900m in BTR schemes will see the growth weighted to the market, with a further £600m in PBSA, and huge potential in the new affordable housing business. It is a big shift for the developer, which started out in student housing.
In results for the full year ended 30 September 2020, Watkin Jones revealed revenue down 5.5% to £354.1m and pretax profit down 9.3% to £45.8m, attributed to deferred forward sales due to Covid-19 uncertainty.
Student housing made up 63% of revenue, with BTR growing to 26% and with further anticipated climbs.
‘BTR is coming of age’
Simpson said the student to BTR split will likely reverse, with the emerging asset class driving the bulk of growth. “BTR is really coming of age. I think we’ve got a really attractive pipeline in a really attractive sector.”
With the focus very much still on new land, planning and forward sales, delivery is still relatively low. In 2020, Watkin Jones completed just one BTR scheme with 159 flats in Bournemouth. However, it now boasts a secured pipeline of 4,466 homes across 13 sites for delivery in the next five years.
The developer is also expanding schemes, with plans in for its largest project to date, comprising 779 flats with a mix of BTR and co-living at Portcullis House in Glasgow.
“We find that already with quite a few of our schemes, parts are student, parts are BTR, parts build-to-sell, parts are another use altogether,” said Simpson.
He said the rapid expansion of the business and developer types positions Watkin Jones for bigger brownfield regenerations “adding another string to our bow”.
This will be bolstered by a new affordable housing offering in a new business pivot for the smaller housebuilding business based in the North West.
“It does sit slightly at odds with our core business, which is residential for rent, forward sale, capital-light, BTR and PSBA,” said Simpson. “There is an opportunity with the homes business to repurpose to being an affordable housing-led developer and then equally forward sell.”
Affordable housing launch
“The affordable housing opportunity is large and national. The government is desperate for more developers to come in and support it,” he added.
The business has a debut pilot scheme of 245 homes in Crewe and Watkin Jones is currently laying the foundations for future growth. This includes applying to Homes England for affordable grant finance, and potentially registering as a provider of social housing, as an extension to the BTR management brand Fresh Property.
“There is institutional appetite for affordable housing from both public and private investors. That market is growing quite fast,” added Simpson. “If we wanted then to start managing it, why not? We have Fresh Property Management, we manage lots of residential. I can’t see any why we can’t do it, but that is definitely for the next step.”
That doesn’t mean an end for the housebuilding private market sale though. Simpson said: “It could be an important part of the model to make sure financial viability is still being delivered, even from our affordable housing-led schemes. Retaining that in some shape or form is going to be quite important.”
With high ambitions for all homes types, Watkin Jones is focused on growing that pipeline even further.
“What we can say is at the moment it is an attractive market to buy land. There are plenty of opportunities from owners of commercial real estate, be it offices, or retail, which are perhaps not in the right location, a bit peripheral or just a bit obsolescent,” said Simpson. But those sites are ideal for all types of resi.
“We will continue to secure land. We’ve got a careful balance sheet and we do carefully protect it, but nonetheless, our capital-light model means that we can grow pretty quickly and so where there are opportunities we will look to capitalise on them.”
To send feedback, e-mail emma.rosser@egi.co.uk or tweet @EmmaARosser or @estatesgazette
