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WHERE ARE THE IDEAL RENTAL PROPERTIES?
UK TENANT SURVEY 2014 PRIVATE RENTED SECTOR RESEARCH
RESIDENTIAL RESEARCH
AFFORDABILITY VS LOCATION WHAT TENANTS WANT
2
Our survey confirms the views of more than 3,500 people aged 18+ living in privately rented accommodation across Britain. The findings help identify the key factors currently driving the rental market, and provide crucial information on how the sector may develop in the future.
The survey mirrors the rental market in Great Britain, with a weighting towards those aged between 25 and 34, as well as a bias towards those in living urban areas.
It examines the priorities of tenants across the country when it comes to choosing a
TENANT SURVEYThe Knight Frank UK Residential Tenant Survey is the largest survey of its kind, highlighting the priorities of tenants across the country.
Affordability and proximity to work and transport links are the key considerations for tenants looking for a new rental property
The maximum proportion of their income tenants are prepared to pay on rent each month is 40% on average. More than one in ten (11%) Londoners are prepared to pay more than 50%
Nearly a third (32%) of tenants say they are living in the private rented sector because it suits their lifestyle and/or they don’t want a mortgage
Half of tenants are willing to pay a slightly higher rent for allocated off-street parking, while 34% will pay a rental premium for a concierge and/or 24 hour security
KEY FINDINGS
“ Our survey shows that the majority of renters do not view the PRS as just a “short-term” move. Less than a quarter of tenants expect to leave the sector within two years.”
GRÁINNE GILMORE Head of UK Residential Research
FIGURE 1
How the private rented sector has grown Proportion of dwellings, UK
Source: Knight Frank Residential Research / DCLG
The private rented sector (PRS) has become a more dominant tenure over the last 10 to 15 years. There are now more privately rented dwellings than socially rented homes, and the sector is second only in size to owner-occupied housing. The growth in the private rented sector pre-dates the housing crash of 2007/08 although the financial crisis has augmented the trend. In fact the real rise of the PRS started just after the turn of the 21st century, aided by the sharp rise in the
A GROWING SECTOR availability of buy-to-let mortgages, allowing consumers access to direct investment in the property market.
The dynamics of the housing market, where supply has failed to keep up with demand which in turn has played a role in pushing up house prices, has also put home ownership beyond the reach of many young workers, especially in key employment hubs. This, coupled with an increasing mobile and flexible workforce has led to rising demand for privately rented property.
rented home, as well as looking at their
preferences should they move into
a purpose-built rented development.
Alongside this is an investigation into
rents; how much of their income tenants
are prepared to pay and what services
and amenities for which they are prepared
to pay a higher rent or additional charges.
The results are a new and timely insight
into the UK’s burgeoning private rented
sector, and highlight the key trends as the
market moves into a new phase with the
advent of more large-scale investment.
0m
1m
2m
3m
4m
5m
6m
7m
8m
PRIVATELY RENTED
RENTED FROM HOUSING ASSOCIATION
RENTED FROM LOCAL AUTHORITY
OWNER-OCCUPIED (Right hand scale)
Ow
ner-
occ
upie
d
Ren
ted
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 20110
5m
10m
15m
20m
Tenant prioritiesWhen looking for rented accommodation, the overriding priority for tenants of every age group and in every region is affordability. Nearly two-thirds of our respondents said this was their main concern when compared to location or space in the property. Around a quarter said that location was the most important factor when choosing a rental property, while 10 per cent said that the size of the property was the key consideration.
Those earning between £30,000 and £35,000 a year were slightly above average in their concern about affordability (67%). Moving up the income scale however, location becomes a bigger priority, with 39% of those earning between £50,000 and £60,000 a year citing this as their main concern.
Examining the trade-off between affordability, location and space in more detail in figure 2 shows that more than a third (36%) of tenants would be happy to live in a smaller space, in this case a studio flat with communal entertaining space, in what they considered to be a central location in order to make the rent more affordable. More than half of those surveyed aged under 25 in the private
RESULTS
AFFORDABILITY65%
AFFORDABILITY65% AFFORDABILITY
65%
Plentyof space10%
Location23%
TENANTPRIORITIES
TENANTPRIORITIES
Plentyof space10%
Location25%
Location23%
Don’t know3%
Plentyof space10%
TENANTPRIORITIES
FIGURE 2
Which is most important when choosing privately rented accommodation?
Source: Knight Frank Tenant Survey 2014Figures may not add up 100% due to rounding
rented sector (53%) would be happy to choose this type of flat to ensure their rent is affordable.
It is also notable that across all geographical locations, the largest proportion of those who said they would live in a studio flat under the circumstances above lived in London (42%), followed by those living in the West Midlands (40%). Some 34% of Londoners said they would live in a “micro-flat”, a smaller studio space with communal entertaining space, if it made the rent more affordable for living in their perfect location.
RentsWhen asked how much of their gross income they would be willing to pay on rent, the average response was 40%.
There are some significant regional variations in these results. Only 17% of those in the North East would spend more than 40% of their salary on rent, but this more than doubles in the South West, to 32%. In London and the South East, around a fifth (22% and 20%) of respondents are prepared to pay between 40% and 50% of their income on rent, while one in ten Londoners
FIGURE 3
Proportion of tenants happy to live in studio flat in central location to ensure a more affordable rent
Source: Knight Frank Tenant Survey 2014
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Closeto goodschools
Close toamenities
(cafes, gym etc)
Close tofriends and
family
Close toshops
Close totransport
links
Close towork/
university
Affordability
85% 55% 53% 51% 34% 33% 12%
Closeto goodschools
Close toamenities
(cafes, gym etc)
Close tofriends and
family
Close toshops
Close totransport
links
Close towork/
university
Affordability
85% 55% 53% 51% 34% 33% 12%
3
FIGURE 5 Which of these are important to you when choosing a rental property? % of respondents who identified each factor
Source: Knight Frank Tenant Survey 2014
FIGURE 4
What is the maximum percentage of gross monthly income you are willing to pay on rent?
Source: Knight Frank Tenant Survey 2014
0%
5%
10%
15%
20%
25%
30%
35%ALL GB
25-34 GB
LONDON
Don’tknow
50%+Up to50%
40%30%Up to 20%
Proportion of pay
Pro
po
rtio
n o
f re
spo
nden
tsUnder 25s 53%
Tenants in London 42%
Tenants in West
Midlands 40%
GB average 36%
RESIDENTIAL RESEARCHTENANT SURVEY 2014
(11%) are prepared to pay more than 50%, underlining the cost of renting in the Capital.
Nearly a quarter (23%) of those aged under 25 are also prepared to pay between 40% and 50% of their monthly pay on rent, highlighting the relatively weaker earning power of those just starting out in their careers against the cost of renting a property.
There is also evidence of a rent “ceiling”, even for those on higher earnings. While a third of those earning between £20,000 and £25,000 a year said they would pay a maximum of between 30%- 40% of their income on rent, less than a quarter (24%) of those earning between £45,000 and £50,000 a year said the same. Even if their income rises, there is still a natural limit to what tenants are prepared to pay on rent.
Choosing a property: After affordability is factored in, it is clear that location plays a crucial role. Some 55% of respondents said that having a rental apartment or house close to where they work or study was important, with more than a half also identifying proximity to transport links, shops and other amenities as a priority.
Breaking down the results by age, it is clear that young professionals value living close to their office, fitting with the trend we are seeing for demand for city centre private rented sector accommodation. Nearly three-quarters (73%) of those under 25 and two-thirds (66%) of 25-34 year olds
said that when looking for a rental property, being within reasonable proximity of where they work and study was a key priority. Around 58% of those aged under 35 also said that being close to transport links was important, compared to the average of 53%. This underlines the urban nature of the growth in the private rented sector, and suggests that this trend will continue.
The majority of tenants (78%) surveyed would like to live within 1km or closer to their nearest transport link, be it a railway station or bus stop, with 34% saying they would like to live within 500m, or roughly a six-minute walk away.
The changing rental sectorThere has been a rise of large-scale investment into the rental sector in the UK over the last year or two, with organisations such as pension funds and insurance companies becoming much more interested in the PRS as a means of securing long-term income streams. This type of investor is looking for rental blocks rather than individual rental properties, in line with the more mature private rented sector market in the US.
Purpose-built rental blocks can come with a range of extra facilities not generally
0%
20%
40%
60%
80%
100%
75+65-7455-6445-54AGE
35-4425-3418-24
Close to transport links(e.g. train station, tube stop, bus stop etc.)
Within reasonable proximity to where I work/study
Affordable/within my budget
Close to transport links
Within reasonable proximityto where I work/study
Affordable/within my budget
FIGURE 6
How priorities change with age
Source: Knight Frank Tenant Survey 2014
FIGURE 7 How far from the nearest transport link would you like to live?
Source: Knight Frank Tenant Survey 2014
WITHIN 250 METRES
WITHIN 500 METRES
WITHIN 750 METRES
WITHIN 1 KM
2-5 KM
5+ KM
WITHIN 250 METRES 14%WITHIN 500 METRES 20%WITHIN 750 METRES 17%WITHIN 1 KM 27%2-5 KM 11%5+ KM 1%
14%
20%
17%
27%
11%
1%
14%20%17%27%11%1%
WITHIN 250 METRES
WITHIN 500 METRES
WITHIN 750 METRES
WITHIN 1 KM
2-5 KM
MORE THAN 5 KM
WIT
HIN 250 METR
ES
WIT
HIN 500 METRES
WITHIN 750 METRES
WITHIN 1KM
2-5 KM5 KM+
WIT
HIN 250 METR
ES
WIT
HIN 500 METRES
WITHIN 750 METRES
WITHIN 1KM
2-5 KM5 KM+
14%
20%
17%
27%
11%
1%
WIT
HIN 250 METR
ES
WIT
HIN 500 METRES
WITHIN 750 METRES
WITHIN 1KM
2-5 KMMORE THAN 5 KM
9% Don’t know/No preference
available to those living in alternative rented accommodation, such as a concierge or in-house cleaning service.
When we asked tenants what services they would consider paying a slightly higher rent for in such accommodation, the highest proportion said that they would pay a rental premium (50%) for allocated off-street parking.
While 27% of respondents said they would pay a higher rent for a fully furnished flat, there was a significant age bias, with more than 53% of under-25s, and 32% of 25-34 year olds saying they would pay higher rent for this. Across earnings brackets, 31% of those earning between £25,000 and £34,999 a year said they would pay extra for a furnished property, falling to 14% for those earning between £45,000 to £49,999 a year. However the proportion rises again for those earning £100,000 plus, with 29% of these respondents saying they would pay extra. Around a third of respondents said they would pay a higher rent for a gym in or close to the building.
The survey suggests that more people would rather pay a slightly higher rent for inclusive parking than pay an extra charge each time they use an allocated space.
4
RESIDENTIAL RESEARCHTENANT SURVEY 2014
Around 40% said they would pay an extra charge to use additional storage facilities, while a third said they would pay an extra charge for “in-house” cleaning of their flat.
Future market: There is a clear link between the availability of mortgage finance and the rental sector. When asked why they were renting, most tenants said that saving for
5
FIGURE 8 Which services in purpose-built privately rented accommodation will command a higher rent % respondents who would pay higher rent for service
Source: Knight Frank Tenant Survey 2014
0
10
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30
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ALL
18-24
25-34
% r
esp
ond
ents
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ALL
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25-34
% r
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ond
ents
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ALL
18-24
25-34
% r
esp
ond
ents
1%70+3%
48%
26%
12%10%30’s
40’s
50’s
60’s
AGE OFBUYERS
Residentsentertaining
space
Cinemaroom
Allocatedon-streetparking
Fullyfurnished
flat
GymAdditionalstorage
24-hourconcierge/
security
Swimmingpool
Allocatedoff-streetparking
Residentsentertaining
space
Cinemaroom
Allocatedon-streetparking
Fullyfurnished
flat
GymAdditionalstorage
24-hourconcierge/
security
Swimmingpool
Allocatedoff-streetparking
Residentsentertaining
space
Cinemaroom
Allocatedon-streetparking
Fullyfurnished
flat
GymAdditionalstorage
24-hourconcierge/
security
Swimmingpool
Allocatedoff-streetparking
UNDER 16 16-24 25-34 35-44 45-45 55-64 65+
a deposit for a home loan was a factor, as shown in figure 12. But this may only be a part of the story. Some 32% also said that they liked the flexibility of living in the private rented sector and/or they didn’t want a mortgage. This seems to reflect the rising trend of those who like the flexibility of renting, especially among the younger professionals working in urban locations. Well over a third (37%) of under-25s said that renting suited their lifestyle.
Transparency is the most prized quality for a lettings agent among tenants, our survey shows. More than half of respondents (54%) said that being clear about charges and the deposit was one of the three most important factors, scoring well above the actual fees charged by the agent (42%). This gives some indication that tenants understand the competitive nature of the market when it comes to fees, but value being able to clearly determine what those fees are. Speedy response times to queries and being easily contactable are the next most important qualities, tenants say – as shown in figure 9.
Being easy to contact should be the key priority for property managers, our survey suggests. Some 46% of tenants said that being easily contactable by phone and email is the best quality, followed closely by being committed to responding to any tenant enquiries within 24 hours.
WHAT TENANTS WANT…From property managers and lettings agents
FIGURE 9
What are the most important qualities for a good lettings agent
FIGURE 10
What are the most important qualities for a good property manager
Source: Knight Frank Tenant Survey 2014
Respondents chose up to 3 most important attributes
Source: Knight Frank Tenant Survey 2014
Transparency
Competitive fees
Quick responses to any queries
Easily contactable via phone/e-mail
Member of a trade body (e.g. ARLA)
Good knowledge of rental properties
Good communication skills
Offices open longer hoursand at weekends
Good knowledge of the local area
54%
42%
37%
32%
30%
27%
14%
13%
13%
Easily contactable via phone/e-mail
Straight-forward/honest with tenants
Responds to any queries within 24 hours
Sends/uses reliable contractors
Ensures repairs and cleanlinessin communal areas
Provides support to tenants
Clear out-of-hours contact details
Friendly
Good knowledge of rental properties
Good knowledge of the local area
46%
43%
43%
39%
37%
29%
16%
14%
5%
3%
When asked how long they were likely to stay in the rental sector, nearly a quarter of respondents (24%) said they were unlikely to ever move out of privately rented accommodation.
“ The rising significance of the private rented sector is creating many opportunities for investors, especially as we are starting to see the advent of large-scale professional landlords. In order to make the right investment decisions, finding out what tenants want and need is crucial. This report aims to answer those questions.”TIM HYATT, Head of Residential Lettings, Knight Frank
The Wealth Report 2014
RECENT MARKET-LEADING RESEARCH PUBLICATIONS
Knight Frank Research Reports are available at KnightFrank.com/Research
© Knight Frank LLP 2014This report is published for general information only and not to be relied upon in any way. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no responsibility or liability whatsoever can be accepted by Knight Frank LLP for any loss or damage resultant from any use of, reliance on or reference to the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank LLP in relation to particular properties or projects. Reproduction of this report in whole or in part is not allowed without prior written approval of Knight Frank LLP to the form and content within which it appears. Knight Frank LLP is a limited liability partnership registered in England with registered number OC305934. Our registered office is 55 Baker Street, London, W1U 8AN, where you may look at a list of members’ names.
For the latest news, views and analysison the world of prime property, visit
KnightFrankblog.com/global-briefing
GLOBAL BRIEFING
RESIDENTIAL RESEARCH
Gráinne Gilmore Head of UK Residential Research +44 20 7861 5102 [email protected]
RESIDENTIAL LETTINGS
Tim Hyatt Head of Residential Lettings +44 20 7861 5044 [email protected]
Lucy Jones Head of Lettings Investments +44 20 7861 1264 [email protected]
RESIDENTIAL CAPITAL MARKETS
James Mannix Head of Residential Capital Markets +44 20 7861 5412 [email protected]
Tim Treadwell Partner, Residential Capital Markets +44 20 7861 5416 [email protected]
Adam Burney Associate, Residential Capital Markets +44 20 7861 5170 [email protected]
All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 3,525 GB adults aged 18+. Fieldwork was undertaken between 30th July - 11th August 2014. The survey was carried out online.
Knight Frank Residential Research provides strategic advice, consultancy services and forecasting to a wide range of clients worldwide including developers, investors, funding organisations, corporate institutions and the public sector. All our clients recognise the need for expert independent advice customised to their specific needs.
Source: Knight Frank Tenant Survey 2014
44%32%
28%27%
17%
Don’t havea mortgage
deposit
Suits lifestyle/don’t want mortgage
Live in locationwhere can’tafford to buy
Don’t meetcriteria formortgage
Saving fora deposit
FIGURE 12
Why are you renting?
Source: Knight Frank Tenant Survey 2014
44%
Don’t havea mortgage
deposit
0% 5% 10% 15% 20% 25%
Don’t know
Will alwaysrent privately
15 years+but will buy
10-15 years
5-10 years
4-5 years
3-4 years
2-3 years
1-2 years
Up to a year
0% 5% 10% 15% 20% 25%
Don’t know
Will alwaysrent privately
15 years+but will buy
10-15 years
5-10 years
4-5 years
3-4 years
2-3 years
1-2 years
Up to a year
0 5 10 15 20 25
10 15 20 25
DON’T KNOW
WILL ALWAYS RENT PRIVATELY
15 YEARS+ but will buy
10-15 YEARS
5-10 YEARS
4-5 YEARS
3-4 YEARS
2-3 YEARS
1-2 YEARS
UP TO A YEAR
Don’t know
Will always rent privately
15 years + but will buy
10-15 years
5-10 years
4-5 years
3-4 years
2-3 years
1 - 2 years
Up to a year
0
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25
3-4 years2-3 years1 -2 years
Up to a year
MON TUES WEDS THURS FRI
MON TUES WEDS THURS FRI SAT
MON TUES WEDS THURS FRI
MON TUES WEDS
MON TUES WEDS
MON TUES WEDS THURS
MON TUES
MON TUES
MON TUES WEDS THURS FRI SAT SUN MON TUES WEDS THURS FRI
FIGURE 11
How long do you plan to continue living in privately rented accommodation?
A further 36% said they would remain in the sector for more than two years, as shown in the chart opposite.
The results show that a notable proportion of those aged 35-44 are in no hurry to move out of the rental sector, with a fifth (24%) saying that they would stay in the rental sector for more than three years and 26% saying they will always rent privately.
Family size also seems to have a bearing on respondents’ attitudes to staying in the rental sector. While a quarter (25%) of people with no children in their household said they would probably always rent privately, this falls to 19% for families with three or more children.
The results show that the private rented sector is not considered by the majority of renters to be just a “short-term” move. Only 24% of tenants expect to leave the sector within two years.
RESIDENTIAL RESEARCH
THE RENTAL REVOLUTION EXAMINING THE PRIVATE RENTED SECTOR 2014
THE PRS: A GROWTH STORY
INSTITUTIONAL INVESTMENT IN PRS
RENTAL PERFORMANCE 2013
INTRODUCIN
G THE N
EW
KNIGHT F
RANK P
RIVAT
E
RENTE
D SECT
OR INDEX
Private Rented Sector Report 2014
Rental values in prime central London rose for the seventh consecutive month in September, though at a slower rate than in recent months.
An increase of 0.2% took annual growth to 1.6%, which is the highest rate in two and a half years as the rental market in prime central London continues to recover.
The recovery, which began at the start of the year, comes as the UK economy returns to health after the financial crisis.
Last month, the Office for National Statistics said the country’s economy was 2.7% larger in the second quarter of the year compared to its pre-crisis peak. It also revised its second-quarter growth figure higher to 0.9%.
Similarly, the rental value index is fast approaching the pre-Lehman Brothers peak recorded in March 2008. Rental values fell before rising in 2011 to exceed that peak due to a supply squeeze but had been in decline since September 2011 until the start of this year due to the fragile UK economy.
The number of new prospective tenants in September was 22% higher than the same month last year and the total for the first nine
months of the year was 19% higher than the same period in 2013.
Meanwhile, the high number of new tenancies agreed by Knight Frank in September meant the total in the first nine months of the year was 48% higher than 2013 while the number of tenancies commenced was up 55% over the same period.
The rentals market will also benefit as the uncertainty of next May’s general election dampens demand to some degree in the sales market.
While there is no marked trend of vendors deciding to become landlords and buyers becoming tenants, it is happening to some degree and there are increasing instances of properties being marketed to both the sales and rentals market.
Annual growth for rental values in the £1,500 per week and above category was 1.9% while it was 0.9% for properties below that figure.
Rental yields also continued their recovery in September, rising from 2.82% to 2.84%. It is not high by historical standards but it was the largest monthly increase in more than three years.
SEPTEMBER 2014Annual rental value growth was 1.6%, the highest rate in two and a half years
An increase of 0.2% in September took the number of consecutive monthly rises to seven
The rental value index approached its pre-Lehman Brothers peak recorded in March 2008
The high number of new tenancies agreed in September meant the total in the first nine months was 48% higher than 2013.
Rental yields rose to 2.84%, increasing by the largest amount in more than three years
TOM BILL Head of London Residential Research
“The rental value index is fast approaching the pre-Lehman Brothers peak recorded in March 2008” Follow Tom at @TomBill_KF
For the latest news, views and analysis on the world of prime property, visit Global Briefing or @kfglobalbrief
PRIME CENTRAL LONDON RENTAL VALUES APPROACH PRE-LEHMAN PEAKRental values climb as UK economic recovery strengthens and yields increase by the most in more than three years
RESIDENTIAL RESEARCH
PRIME CENTRALLONDON RENTAL INDEX
FIGURE 1 The rental market recovery January to September: 2014 vs 2013
FIGURE 2 Annual rental growth and yields climb
Source: Knight Frank Residential Research Source: Knight Frank Residential Research
Annual rental growth Rental yield
DO
WN
UP
New prospective
buyers
+19%
+55%
New prospective
tenants
+48%
Tenancies agreed
+24%
Viewings Tenancies commenced
2.5%
2.6%
2.7%
2.8%
2.9%
3.0%
Sep
-13
Oct
-13
Nov
-13
Dec
-13
Jan-
14
Feb-
14
Mar
-14
Apr
-14
May
-14
Jun-
14
Jul-1
4
Aug
-14
Sep
-14
-2.5%
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
There has been a recovery in residential property prices across the UK over the last year. The pick-up in demand across the market is also reflected in our private rented sector (PRS) index, with the pace of capital growth for investment-grade rented blocks advancing to 7.3% in the year to the end of Q2 2014, up from 6.4% in the year to the end of Q4 2013.
Capital growth has accelerated in every area we monitor over the last six months, with the exception of central London, where annual growth slowed from 9.5% in Q4 2013 to 7.6% in Q2 this year. However the outer zones of London experienced the biggest growth in capital values, with an average 13.5% rise in zones 3-6 rising in value by 13.5% and blocks in zones 2 and 3 rising by an average of 12.9%. (chart 1)
Rental growth has not quite kept pace with the rise in capital values however, with average rents increasing by 2.6% in the year to Q2. This is down from a rise of 2.9% in 2013. However the regional picture varies. London has seen rents picking up over the last six months from a low base. While there has been a slight moderation in regional
Key facts Q2 2014Average initial gross yields six key cities of Leeds, Bristol, Birmingham, Glasgow, Manchester and London at 6.4% in Q2 2014
Gross yields range from 4.3% in central London to 8.2% in Leeds in Q2 2014
Average rental growth was 2.6% in year to end of June 2014, while average capital growth was 7.3%
RESIDENTIAL RESEARCH
PRIVATE RENTEDSECTOR INDEX
“ Yields in the regional cities are outperforming those in London. With the pace of capital growth stepping up, total returns are rising.”
Follow Gráinne at @ggilmorekf
For the latest news, views and analysis on the world of prime property, visit Global Briefing or @kfglobalbrief
GRÁINNE GILMORE Head of UK Residential Research
PRIVATE RENTED SECTOR TOTAL RETURNS RISE IN Q2 2014 The private rented sector index, encompassing key city markets across the UK, shows that initial gross yields have fallen slightly but capital growth has stepped up, resulting in higher total returns in the year to Q2 2014. Grainne Gilmore examines the latest trends in the market.
rental growth, these city markets are still far outperforming the capital in terms of annual rental increases.
As a result, gross yields have been compressed slightly across the sector, falling to 6.6% in Q4 2013 to 6.4% in Q3 2014 taking the net yield from 4.9% to 4.8%. Returns are also regionalised, with the average gross yield in Manchester and Birmingham at 8.2% and 8.1% respectively, compared to a gross yield of 4.3% in central London (chart 2). The average net yield across the index is 4.8%, while the total return is 12.1%, up from 11.3% in Q4 last year.
The index is comprised of rental data collected from large rental single-block properties classed as prime, median and economic. The classification of these blocks takes into account location, monthly rents and also the type of unit on offer – a prime block will have units in the most desirable areas. In contrast, economic blocks are the least expensive for tenants, but their capital value is also lower, indicating higher initial yields for investors.
Source: Knight Frank Residential Research
0%
2%
4%
6%
8%
10%
Lond
onZo
ne 1
Lond
onzo
nes
2-3
Lond
onzo
nes
4-6
Birm
ingh
am
Bris
tol
Gla
sgow
Leed
s
Man
ches
ter
Q2 2014Q4 2013
Source: Knight Frank Residential Research
0%
3%
6%
9%
12%
15%
Lond
onZo
ne 1
Lond
onzo
nes
2-3
Lond
onzo
nes
4-6
Birm
ingh
am
Bris
tol
Gla
sgow
Leed
s
Man
ches
ter
Q2 2014Q4 2013
FIGURE 1
Average initial gross yields Q2 2014
FIGURE 2
Average capital growth Year to end of Q2 2014
Private Rented Sector Index Q2 2014
Prime Central London Rental Index Sept 2014
