Please Note: This Article is 4 years old. This increases the likelihood that some or all of it's content is now outdated.

Recent research by international property consultants Knight Frank predicts that large-scale landlords – institutional investors and professional landlords – will have invested £50bn into the PRS by 2020; into what is now a £1trillion marketplace.

The Private Rented Sector (PRS) is continuing to grown across the UK. It is dominated by small-scale landlords most owning just one or two rentals. Buy-to-let is now well established as an investment alternative and now represents the biggest form of housing tenure after homeownership, having overtaken the social rented sector in 2013.

The market has doubled in size over the last 15 years or so, boosted by the deregulation of the rental laws in the 1990s, easily available buy-to-let mortgages and a burgeoning of demand for tenancies.

More recently, large-scale investment into the private rented sector (PRS) by funds and institutions, encouraged by government incentives in build-to-rent schemes, is according to Knight Frank’s research, set to treble over the next five years, new research in this report shows.

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Knight Frank claim that their report is the result of “the largest survey of its kind ever conducted” and aims to “give new insight into demand in the privately rented market” and show “the needs and preferences of tenants across the country”.

The Tenant Survey was carried out by YouGov on behalf of Knight Frank and collates the responses of 5,000 people living in privately rented accommodation to identify key trends in the market.

In addition, 16 large-scale investors were interviewed for their intentions, indicating how the market may develop by 2020.

These are the main findings:

  • Investment by large-scale investors in Build-to-Rent is set to triple by 2020, with Knight Frank estimating that total investment will rise to £50 billion over the next five years.
  • Large-scale investors are operating an average gross to net yield of 26% for new Build-to-Rent developments.
  • The majority (53%) of tenants favour a six month or one year tenancy for rented accommodation.
  • More than half (52%) of tenants said living close to work or their place of study is a key priority, and the main reason (30%) for moving between rented properties was to ‘upgrade’ to a nicer or larger property.
  • More than a third (38%) of tenants have lived in five or more rental properties. While the majority of respondents had moved within a mile of their previous property, around a sixth (19%) had moved more than 60 miles, indicating a relocation for work or study, highlighting the flexibility of PRS as a tenure.
  • Nearly a quarter (24%) of Londoners are prepared to pay 50% as a maximum amount of their gross annual income on rent, up from 22% last year.
  • A quarter of those living in the PRS do not want to, or don’t know if they want to buy a home in the future. Of those that express a desire to eventually buy a home using a mortgage, less than half are currently saving towards a deposit.
  • A quarter of those living in the private rented sector live alone, while 34% live in a couple without children. Some 43% of 18-24 years olds share with other adults in a ‘flat-share’.

Tenants in the private rented sector say that the most important quality for a landlord or lettings agent is transparency.

Being open with tenants, as well as the ability to respond quickly to queries, are both attributes which are prized more highly than the competitiveness of fees charged by the agency.

Knight Frank Tenant Survey 2015/16, results for tenant preferences for tenancy management in order of priority:

  • 51% – Transparency
  • 50% – Responds to any queries within 24 hours
  • 48% – Straight-forward/honest with tenants
  • 47% – Easily contactable via phone/e-mail
  • 38% – Sends/uses reliable contractors
  • 29% – Ensures repairs and cleanliness in communal areas
  • 22% – Provides support to tenants
  • 16% – Clear out-of-hours contact details
  • 16% – Friendly
  • 10% – Good knowledge of the local area
  • 5% Don’t know/Other

This move to a structural change in the PRS is perhaps a wake-up call for many small-scale private landlords whose buy to let investments have been successful but are now facing competition from the big boys. Rather like the small shops when Tesco came along, competition will improve standards all round, but it could drive some out of business.

Five per cent is still a relatively small sector of the market by 2020, but these professional private operators will be targeting students and professionals; in many ways the “cream” of the lettings market. This could represent serious competition for small-scale buy-to-let in some districts.

To read the full Knight Frank PRS market report see here

Please Note: This Article is 4 years old. This increases the likelihood that some or all of it's content is now outdated.

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