Opportunities For Investment
2 February 2016, by Lawrence Bowles
Investors are looking beyond London to cities with concentrations of households in the rental market.
The search for higher yields and fresh opportunities is prompting investors to look beyond London. There are high concentrations of households renting privately in a number of regional cities following significant growth in the tenure this century.
We have analysed the fundamental factors driving the rental market. The 29 cities listed below represent some of the most attractive cities for investment in the rental market, although opportunities will vary on a site by site basis. Manchester, Reading, Edinburgh and Bristol top our list because of their strong economic growth prospects and reputation as vibrant, desirable places to live. Whilst this is not an exhaustive list, we have also sought to highlight investment prospects in cities set to experience a significant housing shortfall, such as Oxford. The cities are rated on four groups of criteria.
First, we considered the economic prospects of each city, which included analysis of historic and future employment growth and major growth sectors. Cities that performed well in this category not only had high levels of forecast job growth, but also saw growth in sectors where advance levels of education are required and where pay is relatively high, such as finance or the technology sector.
Second, we considered the investment potential of each city by looking at the net income return, rental growth prospects, and capital value growth. Cities that performed well here have seen comparatively strong rental growth but prices remain relatively low, leading to stronger yields.
Next, we considered relative levels of housing supply and demand in each city, looking at objectively assessed need, household projections, population growth forecasts and dwelling completions. Most of our top cities have experienced a major shortfall in housing supply over the last few years, and this appears likely to continue.
Finally, we looked at how the rental market has evolved and grown in these cities. Growth in the number of households renting privately reflects a nationwide trend that has been very pronounced in most of our top cities. This criterion also considers the affluence of rental market households, prioritising cities where renters are in well-remunerated, highly skilled jobs that will support future rental growth. These industries bring well-paid employees who can support higher rental levels and help to reinvigorate cities and make them more attractive places to live.
Source: Savills Research