Housing association retains ‘AA-’ rating but outlook revised to negative

Local Space owns and manages around 3,200 homes in east London and Essex. It was set up by Newham Council in 2006 and specialises in providing accommodation for key workers and those facing homelessness.

The landlord is aiming to gradually take back control of the homes it currently leases to the council.

S&P said that Local Space will benefit from in-house management of its repairs, but that costs will initially be higher for the landlord.

Despite this, the agency affirmed its credit rating as it still expects Local Space’s arrangements with councils and “unique operating model” to support stronger financial performance relative to its UK peers, though this will be “more subdued amid higher investment in existing homes”.

Local Space has no exposure to market sales. “Over 80% of rental income is guaranteed through the group’s local authority partners, which supports predictable revenue streams,” S&P said.

It also said it expects the demand for temporary and key worker accommodation in the areas covered by Local Space – Newham, Hackney, Waltham Forest and Tower Hamlets – to remain high. 

S&P said that while costs are high, it believes the landlord’s investment plans are supported by data, with roughly 90% of owned and managed stock surveyed within the past five years.

Alongside planned investment in existing properties, Local Space aims to grow its portfolio of settled homes by 20% between 2025 and 2030. 

S&P said its strategy to acquire homes instead of developing them “shields the group from development risks and enables flexibility in its capital programme”.

“Such a lever to temporarily turn off its acquisition programme allows Local Space to preserve liquidity and contain debt if needed,” the agency said. 

It found that debt is slightly lower than expected, as Local Space underexecuted its pipeline in the year ending March 2026.

S&P expects the landlord to resume capital expenditure for acquisitions after a temporary pause as it works to secure a new debt facility. 

“Beyond acquisitions, we also project the portfolio to gradually expand via its additional short-term leases with [Newham Council],” the agency’s report said.

According to the report, “the negative outlook reflects the risk that management is unable to efficiently execute its plans to scale the business and bring management of repairs in house, leading to cost overruns or a backlog in repairs”.

S&P added: “We could lower the rating over the next 24 months if Local Space’s management encounters operational challenges in managing repairs and is unable to sufficiently contain costs.

“We could also lower the rating if Local Space increases debt materially beyond expectations to fund acquisitions.”

S&P also said it could revise the outlook to ‘stable’ if Local Space successfully implements its repairs strategy “while increasing revenue through rent increases and uplift from new homes”. 

Josie Parsons, chief executive of Local Space, said: “Retaining our AA- credit rating is a significant achievement and reflects the strength of our organisation, our people and our partnerships.

“S&P’s assessment recognises the strong governance, financial resilience and operational foundations we have built over many years.

“While the revised outlook reflects the challenges associated with implementing our new operating model, we are confident that these changes will strengthen our services, improve our homes and deliver better outcomes for the families we support.

“Our focus remains on providing high-quality homes for people who have experienced homelessness while continuing to invest in our existing properties and services. We welcome S&P’s recognition of our strong financial position and our ability to adapt and respond to future challenges.”