UK Landlords get better rental returns from furnished flats in town and cities

Furnished flats in towns and cities provide the best rental returns for UK landlords as they appeal to young, mobile tenants, according to research from Countrywide.

There is an 8.1% premium for furnished flats and a 2.8% premium for furnished houses when compared to their unfurnished counterparts, says the latest report from the lettings agency.

The report also shows that in July, UK rents increased 3.7% year on year, with growth predominantly driven by outer London and it says that landlords are able to achieve greater monthly rental returns by knowing what potential tenants are looking for, letting furnished rather than unfurnished properties in key areas.

Typically towns and cities have a younger tenant population who have little or no furniture and are willing to pay a premium for it to be provided by the landlord. In rural areas typically there are more families who have accumulated their own furniture over time and in many cases are actively seeking unfurnished properties.

In some more affluent urban locations a landlord can expect to expect to achieve a third more in rent for offering a property furnished. This is driven by demand and a tenants’ willingness to pay a significant premium for high quality furnished accommodation.

There are a number of city centre locations where furnished properties make a big difference to the premium a landlord can achieve. The relocation of the BBC to Salford in Manchester has had an impact on the city’s rental market, with an influx of BBC employees willing to pay a high premium for furnished flats close to the corporation’s offices.

Also in seaside locations, such as Eastbourne, there are typically a higher percentage of elderly people who are willing to pay a premium for furnished properties in move-in condition. However, there are exceptions, particularly in less affluent areas such as Barnsley and Luton, where falling levels of home ownership amongst the young mean extended periods of time spent in the private rented sector.

In general, the locations where furnished property attracts a smaller premium tend to be areas outside regional city centres. These are typically expensive areas of central London, where the cost of furniture comprises only a small percentage of the rent and in more rural areas where there is a larger population of older families with children who are more likely to have their own furniture.

There continues to be a gentle growth in average monthly rents in England, Scotland and Wales in July 2014, with the average UK rent now standing at £898 per calendar month. The highest average monthly rent remains in central London at £2,503 per calendar month and the lowest in Scotland at £643 per calendar month.

In terms of property size, there has been a year on year increase in average monthly rents apart from three bedroom homes which have seen a 7.2% decrease year on year. One bedroom properties saw the greatest increase in rents, up 4.2% year on year and 1.5% month on month. 

Rent arrears have fallen year on year apart from in the South West, Midlands and the North where arrears have increased slightly. While jobs are being created at a record rate and the claimant count continues to fall, wage growth has lagged behind inflation putting pressure on tenants.

‘Whether you are a first time landlord or a seasoned investor it is important to understand what tenants are looking for. This not only helps to minimise void periods but also assists in achieving the highest return from the rental property,’ said Nick Dunning, Countrywide Group commercial director.

‘In city centre locations, most tenants now expect to be able to move into a high quality furnished property with minimal hassle and are willing to pay a premium to do so. The higher percentage of younger people living in city centres and the turnover of tenants mean tenants are less likely to have their own furniture and are keen to avoid the expense of moving it,’ he explained.

‘Outside of larger towns and cities, the premium attached to furnished properties tends to be smaller with families and older people making up larger proportion of tenants. Turnover in these markets tends to be lower with tenants more likely to have their own furniture already. In such markets it pays for the landlord to be flexible, giving a would-be tenant choice,’ he added.