The rise and rise of urban renters

A new report from Knight Frank has shown the proportion of those in the private rented sector living in urban areas has risen from 80% to 86% over the last decade, mostly accounted for by regional cities outside London.

The growth of the private rented sector in the UK has been well documented, and there is evidence from the most recent English Housing Survey that activity in this market is increasingly clustering in cities around the country. As part of the tapestry of information around the burgeoning investment sector in PRS, Knight Frank has monitored a range of data, not least the views of private tenants in their tenant survey, one of the largest such surveys ever conducted.

As the institutional investment market matures, there has been a desire for more detailed yield data. As such, Knight Frank  has developed its PRS index, which reflected average yields, into a PRS Yield Guide, giving a fuller reflection of the best-in-class deals currently being done in the market.

The Yield Guide shows a slight tightening in yields for prime PRS deals in Q2 across the Greater London market, as well as in many of the other key cities except Bristol and Glasgow.

Meanwhile, the growth in the size of the UK rental sector looks likely to continue.

Demand for rental property is being underpinned by affordability constraints in many parts of the sales market as well as increased hurdles in the mortgage market. There is also an increasing desire for property with flexible tenure, especially among young professionals, who want to live close to where they work.

There has been increasing activity in the regional markets over the last 12 months, with institutional investors attracted by the yields achievable and the strong occupier demand in regional centres. Of particular interest to institutions have been private rented sector schemes in ‘top tier’ regional centres, such as Birmingham & Manchester, with a large amount of interest focussed on lot sizes ranging between £20-100 million.

The increasing entry of institutional investors into the market is a significant positive factor for the PRS, which should lead to an increase in the supply of good quality, well managed rental accommodation. The design of the units within these schemes is aimed at the private rented sector, with appropriate layouts, specification and provision of services being key to the success of these schemes.

Tenants are also living in the PRS for longer – with the English Housing Survey showing that the proportion of those living in rented accommodation reporting that they have lived in their current home for between 2 and 4 years rising to 24%, up from 20% ten years ago.

Rents are rising across the country, reflecting an increase in wages as well as inflation. They rose by 2.5% in the year to the end of June but there are still wide regional variations in rental growth.

Source: Property Reporter

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