The Private Rented Sector (PRS) has grown significantly across the UK, and the capital has seen its fair share of investors swoop in to benefit from rising property prices and rising rent in the capital.
It’s estimated that the PRS sector now forms more than a quarter of the capital’s households, which means over a quarter of property in London is rented privately.
The growing presence of PRS has triggered a debate over whether it will continue to thrive and grow or fizzle out. Which will it be? Well, if investment is anything to go by, it looks like it’ll be the former and that PRS is very much here to stay.
A growing presence in the capital
The UK’s private rented sector was valued at £1.29 trillion in 2016 and became the fastest growing real estate sector the same year, following five years of growth. It remains so, with no other sector coming close to matching it.
With more than a quarter of households in the capital being privately rented, London is the hub for investment of this type. The real estate sector in London is passing from mortgage occupier to privately rented in the blink of an eye and that shift can be attributed to a few different things such as generational attitudes towards buying and huge investment opportunity.
A slam-dunk investment opportunity
Rising house prices in London over the past decade are the reason why the private rented sector has grown so considerably. It’s an understandable response to market conditions – seen as a slam-dunk investment opportunity.
The bottom line is people don’t get into real estate to lose money, and PRS offers an incredibly tempting yield – especially in London. The gross reported yield in prime central London this time last year was 3 to 3.25% and 4 to 4.25% in the south east. Add to that the fact that buy-to-let investors have enjoyed returns of over 1,400% since 1996 and you can see why investors are seeing PRS as a long-term proposition.
Yields are looking good and although a gross yield below 5% would normally mean it makes more sense to sell property, yields differ greatly by area. Some investors are seeing over 10% in the capital year on year. So, they’re keeping hold of property and buying up more in high price growth areas. In other words, they’re taking a smart punt.
Where next for the PRS market in London?
More investors are buying up land to build properties for rent specifically. With more houses being added to the market for rent, the PRS sector will continue to experience huge growth in the capital. Building in the right location is a huge part of this and London has no shortage of upcoming areas for developers to scout.
The most successful PRS schemes in the capital tend to be in urban areas with good local transport links. These areas are prime for development and 25-35-year olds are much more likely to be able to afford to rent here.
The Government and local authorities also back PRS developments because they bring affordable housing to local communities. In fact, the Government pledged a £10bn housing debt guarantee in 2012, implemented in 2013. This set the precedent for the PRS market which is bustling with activity – and London’s leading the way.