Rents rose. Property values fell. Both can be true.

Good morning,

Your tenants are paying more. Fewer flats are sitting empty. Surely that means your property investment is doing better?

On the rent side, maybe. On the value side, not necessarily.

This week's CBRE figures show exactly that: rental values rose while property values fell.

It's a useful reminder that collecting more rent and owning a more valuable asset aren't the same thing.

Let’s dive in.

In this newsletter, you'll find...

• First, what happened?

• So what do you do with this?

• The bottom line

• Feedback

First, what happened?

CBRE tracks professionally managed rental apartment schemes across the UK, a sector it calls “multifamily” (CBRE). Think professionally managed blocks, not your mate renting a room.

Over the six months to September, market rental values rose 1.2%, while occupancy increased from 95% to 96%. Occupancy simply means how much of the accommodation is occupied.

Yet those schemes' capital values, meaning what the properties were worth, fell 2.6% (CBRE). The rental business improved, but the assets became less valuable.

That sounds backwards until you separate the two things you're buying: an income stream today and something you might sell tomorrow.

The bit hiding behind the rent

CBRE says the decline was driven by rising capitalisation rates, which reached 4.75%, up 0.18 percentage points.

Terrible phrase. Simple idea.

A capitalisation rate compares a property's annual income after operating costs with its value, before mortgage payments and tax. In a simple valuation, you divide that income by the return a buyer requires.

If buyers want a higher return from the same income, the price they can pay falls. Even growing income might not be enough to offset that change.

It's like buying a small business. Stronger sales are welcome, but you still care how much you're paying for the earnings.

Here's the maths without the headache

Let's use made-up numbers, not a forecast or a valuation of your flat.

Imagine a rental produces £12,000 a year after operating costs, before mortgage payments and tax. A buyer wanting a 5% return would value that income at £240,000.

Now suppose the income rises 5%, reaching £12,600. Lovely.

But the next buyer wants a 5.5% return. Divide £12,600 by 5.5%, and the value comes out at roughly £229,000.

More income. About £11,000 less value.

You haven't necessarily run the property badly. The price someone will pay for its income has changed.

Those percentages are illustrative, not CBRE's actual valuation movements. They just show why “rents are rising” isn't a complete investment case.

So did investors lose money?

CBRE reports a 2.3% net income return alongside that 2.6% capital-value decline, leaving a total return of minus 0.3% over the period (CBRE). In plain English, the income didn't quite cover the drop in value.

That isn't the same as every investor losing cash from their bank account. A valuation change isn't automatically a completed sale.

And these are institutional rental schemes, not a measured return for your two-bed buy-to-let. Treat the figures as a lesson in how returns work, not a price estimate for your postcode.

So what do you do with this?

Give your spreadsheet two separate tests: can the property pay its way, and does the investment still work if its resale value disappoints?

• Income: Allow for repairs, management and empty periods, not just the advertised rent.

• Borrowing: Check mortgage payments separately from the property's operating income.

• Exit: Try a lower selling price instead of assuming growth will rescue the deal.

• Timing: Ask whether you'd need to sell or refinance before you planned.

A deal that works only with rising rents and a generous future buyer needs another look. Your spreadsheet shouldn't require everyone involved to be unusually optimistic.

Imagine you're buying with a friend. One of you focuses on the monthly surplus; the other plans to sell in three years. You're looking at the same property but taking different risks.

Agree which outcome actually matters before making an offer, rather than discovering the disagreement when it's time to sell.

The bottom line

Rent is one part of the story. What you pay, what you keep and what someone eventually offers all deserve their own line.

Would your next deal still work without price growth? That's the data. You make the call.