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The Trends Influencing Rental Yields In The Current Market

April 16, 2021

The residential sector of the market has recovered remarkably well from Covid, although the rental market is currently somewhat divided. Generally speaking, demand is still strong and rental growth still positive and increasing in outer London. Within the capital, however, rents are down, but renter registrations are up a staggering 44% year-on-year.

That said, the outlook for the residential rental market in London is largely contingent upon the return of tourism and the reopening of offices. While this may not be a quick fix, the vaccine rollout is set to limit how long this recovery will take and already the lower rental prices in the capital are drawing many back in.

Two bedrooms are coming out on top

According to recent market research, two bedroom properties return the highest yields for buy-to-let investors. Howsy analysed current rental yield figures across one, two, three and four plus bed properties by assessing both the average cost to purchase each property type, as well as the average rent they achieve.

Their research confirms that, across the country, the best investment option is a two bedroom property, a property type currently delivering an average yield of 4.8%.In comparison, a one bed sits at 4.1%, a three bed at 4.5% and properties with four or more bedrooms currently achieve an average yield of 3.6%.

The current average rental yield provided by a two bedroom property in London is 4.5%. While the percentage may be lower than rental yields in places such as the North of England, the discrepancies in rent and property values between the two regions would almost certainly mean that the amount of money represented would be higher in the capital.

The shifting priorities of London-based tenants

Despite all of the pandemic-induced economic uncertainty, research shows that there is a high demand for longer-term leases. The average length of a tenancy agreement currently sits at 22 months, with market research revealing that 38% of tenants stated a preference of 18 months or more for their tenancy, and over a third of tenants sought lease terms of three years or more.

As well as affordability, there have been other considerable shifts in tenant preferences since the pandemic took hold. With more and more people spending considerable time at home, a whopping 58% of tenants now view access to private space outdoors as a priority. With working from home now becoming so prevalent, optimal broadband speed is also of key importance for 48% of tenants, whilst a dedicated work space is a key factor for 44% of the tenants that were surveyed.

While many tenants are now considering outer London, students have their eyes set on the city

We blogged recently that while the need for central locations on the basis of workplace proximity is still diminished, the lure of the city’s central living has been reignited. Shops, bars, restaurants and London high streets re-opening coupled with the bargains currently on the rental market are pulling tenants back in at a significant rate.

According to Rightmove, every one of the top ten latest hotspots for rental searches are currently in Zones 1 and 2. You can view the top 10 annual increases in London rental searches for February 2021 here.

The search for space continues

Though students and renters are getting drawn back into city living, there is still a surge in demand for both rental properties and properties for sale that offer more space, with the outer London property markets well poised to offer more space at a lower cost.

The House Price Index published by Zoopla reports that this search for additional space both inside and outside has continued to cause a house price increase. Annual house price growth in the UK has risen by 4.1%, with house prices increasing 4,9% year-on-year - conversely, flats have only seen a growth of 1.9%.

The bottom line

There are currently a lot of changes to traditional property trends across the market, with tenant demand growing rapidly for one and two bedroom properties that give them the space of their own that everyone is craving. Once the threat of the pandemic truly subsides, however, it is likely that we may see some level of reversal to this trend, as people will again feel comfortable to share their living space in order to access the social and lifestyle benefits it can bring. How long that reversing trend is likely to take, though, is yet to be seen. For now, two bedroom properties are the clear winner when it comes to the best yields available.

If you’re a tenant, click the link to view our available London rental properties. Or, if you’re a landlord, find out how much your property is worth with our online rent calculator. You can also give us a ring on 020 7099 4000 if you’d like more information on the current market or the services we offer.

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