Private rental growth in UK centred in regional cities, new analysis suggests

The growth of the private rented sector in the UK continues and there is evidence that activity in this market is market is increasingly clustering in cities around the country.

New data shows 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.

A new analysis of a range of data, including the most recent English Housing Survey, by real estate firm Knight Frank, suggests that this growth is set to continue.

The firm has developed its PRS index, which reflected average yields, into a PRS Yield Guide, produced by Knight Frank consultancy agency and valuation teams which shows a slight tightening in yields for prime PRS deals in the second quarter across the Greater London market, as well as in many of the other key cities except Bristol and Glasgow.

Meanwhile, it says that 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.

Tenants are also staying 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 two and four years rising to 24%, up from 20% a decade 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, just as there is a divergence in entry costs into these markets.

The biggest increase in rents has been in Greater London with growth of 3.8% in the 12 months to the end of June, followed by the East of England up 2.6%, the South East up 2.5% and Scotland up 2.1%.

In the same period rents have increased by 1.8% in the South West, by 1.7% in the Midlands and by 1.4% in Yorkshire and Humber. Meanwhile the growth over the same period in Wales was 0.8% and the North West and the North East both saw growth of 0.5%.

The report also shows how institutional real estate investors are becoming increasingly active in the private rented sector in the regions over the last 12 months. It says they are 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 Birmingham and Manchester, with a large amount of interest focussed on lot sizes ranging between £20million and £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,’ the report concludes.