An ever-growing rental sector is good news for investors

London’s rental population has exploded in recent years, fuelled by lifestyle shifts and the affordability constraints of home ownership. This is a positive trend for property investors to capitalise from. 

PRS Blog IMG

With an estimated 1 million households, the size of London’s private rented sector has more than doubled since the turn of the century. And this growth is forecast to continue with an additional 260,000 private rented households forecast across the city by 2021. This will mean that a third of London’s homes will be privately rented, up from just 15% in 2001. This will translate into strong and sustained demand from tenants for good quality rental accommodation.

A further emerging trend of the private rented sector has been the rising number of families living in the sector. Although most households (47%) are singles and couples, a further 36% are families. This is up from just over a quarter a decade ago. This trend is exerting increased demand for larger (2-3 bed) family homes across London. This is perhaps food for thought for potential investors when deciding on the size of property to buy.

This high and growing demand has been responsible for higher than average rental growth in recent years. According to the Office for National Statistics, the average rent in London has increased by an average of 3.2% per year since 2011, compared with 2.3% at the national level. This has contributed to an average total return of 9% per year in London (according to MSCI).

According to Rightmove the average asking rent of a two-bedroom apartment in London is currently circa £2,000 per month. This ranges from £1,065 in Bexley to £3,500 in prime central London (defined as the boroughs of Westminster and Kensington & Chelsea).