Not so long ago, I was asked to provide comment on what I thought would be the future for the lettings markets within UK city centres.
There was an assumption behind the question that, as a result of the pandemic, they would now struggle.
At the time, much was also made about the so-called ‘race for space’ during the pandemic whereby both owners and tenants who had spent various lockdowns in ‘closed’ city centres were now apparently leaving those areas in their droves, seeking gardens and country living while not feeling the need to live within a commutable distance to their closed offices anymore.
Of course, there has undoubtedly been some of this happening, but given my own experience and my views on the long-term allure of city centre living made me think that any suggestion our cities would be somehow empty, was undoubtedly overblown.
Indeed, it felt like some commentators thought city centres would resemble that scene in 28 Days Later when the protagonist walks through London with barely another soul to be seen in some of the most iconic parts of the city.
At the time, I cited the examples I was seeing of some of my closest friends whose children had returned to live with them through lockdown but were now itching to get back to the city. Quelle surprise, as restrictions have eased and, in the early part of the year, as rents did drop due to a surplus of supply, they have returned to London for the most part, but I’m aware that this will be similar for other cities around the UK.
Just this week, my feelings about the strength of city centre property investment as a still very solid long-term return were partially confirmed by data from Hamptons.
It looked at city centre rental returns and its analysis revealed that yields had seen a 0.6% increase between 2021 and 2020 from 4.7% to 5.3%, while country rental yield returns had actually dropped from 6.4% to 6.2%. And, actually, if you look back over the last six years, that 5.3% is not far off the top yield achieved in city centres, which was 5.5% in 2016.
Anecdotally, we are hearing about a resurgence in letting activity in city centres, as landlords have sought to add to portfolios with properties where they are not competing with first-time buyers, such as flats.
Some might think that the rental market for flats and apartments is on a downward curve, but nothing could be further from the truth. Not everyone wants (or needs) a garden – and tenants seem much more likely to forego this if they can be in the area they want to be in, they have access to all the good things that come with living in the city which have now been opened up, they are closer to work, and they can also be in the vicinity of their friends.
Of course, if you’re a landlord, then you may be looking for properties which come with an outside space because, from a rental point of view, they are going to be able to secure a premium, but other properties are also going to be popular as more people return to the city living they felt was a non-negotiable just 18 months ago.
Certainly, the importance of the student population in all our major cities cannot be underestimated when it comes to the strength of the lettings markets in these areas. Students are already signing contracts for homes for when they return to University in September, and again, flats and apartments, plus shared living in HMOs and multi-unit blocks are going to be as popular as they have ever been, especially with students being able to attend lectures, seminars, and the like, in person.
So, much like the buy-to-let market in the last couple of decades, news of the death of city centre living and therefore city centre property investment, is greatly exaggerated. With the further return to pre-pandemic measures, demand will increase as the appeal of the city grows – while it may have suffered a temporary blip, my belief is that normality will resume, and landlords will continue to add to their portfolios with city centre properties that can deliver both yield and capital gains.
Bob Young is CEO at Fleet Mortgages