People seeking an income-producing property investment may want to consider the merits of the rental sector, after a report published by Savills suggested prime assets in this category will continue to perform well over the next five years. The organisation highlighted the buoyancy of rental markets at present in the UK, with strong demand for such properties being driven by first-time buyers who are unable to afford a deposit on their own home and wider constraints in the mortgage market.
Savills predicts the UK's mainstream rental market will see rents rise by 20.5 per cent during the next five years, although the firm pointed out affordability could be an issue due to the squeeze on household budgets. However, the report stated this "is likely to be less of an issue" in prime locations, largely due to the type of tenant such areas attract. Savills also anticipates rental yields on residential properties will climb from five per cent to 5.7 per cent by 2016. "This should increase the attractiveness of the sector to investors, particularly those looking for strong income-producing assets with growth potential," the report asserted. In addition, Savills has estimated the number of households in private rented accommodation in the UK will grow from 15.6 per cent in 2009/10 to 20 per cent in 2015/16.
Another trend expected to emerge in the rental sector over the coming years is longer tenancies, with divisional lettings director at Felicity J Lord Mariella Petralia recently noting tenants are choosing to stay in their current property due to a lack of affordable alternatives. She noted that, in London in particular, there are more long-term rental contracts being agreed. "We are also finding that this is suiting many landlords as it offers the security of tenure rather than the potential for expensive void periods," Ms Petralia stated. W A Ellis made a similar observation, noting some landlords in the capital are prepared to take a slight reduction in rent in order to keep their tenants in place.
- Thursday 22 December 2011