The Incredible Growth of the Private Rented Sector
What is PRS (Private Rented Sector)?
As the rise of ‘Generation Rent’ occurs across the UK, the Private Rented Sector (PRS) has experienced incredible growth, now making up around 20% of all UK households. PRS developments have also increased in popularity, as investors look to benefit from rising popularity values and rental yields.
Thanks to a combination of more young people choosing rented accommodation over home ownership alongside rising house prices, the Private Rented Sector has seen incredible growth. With an increase of 2.5 million rental homes since 2000, PRS now sits comfortably as the second biggest tenure in the UK housing market and is only set to rise.
It isn’t just the younger generations that are considering renting. A record 1.13 million-over 50’s are also renting from landlords, up from just 651,000 a decade ago.
Over the next four years, the number of properties in the PRS is set to increase by 24%, meaning nearly 5.79 million households by 2021 and one in four looking to rent.
Private Rented Sector Trends
This rapid change in size hasn’t happened overnight. Growth has steadily occurred between 2001 and 2011, particularly inside London and outer-London boroughs. Slough for example as seen the highest growth, increasing by 13.10% thanks to the rise of the Commuter Belt and excellent commercial investment.
PRS developments tend to be most popular in urban locations that benefit from good local transport links. These developments also tend to be medium to high density, performing well in areas with strong employment rates and low-land values.
In contemporary PRS developments, certain lifestyle facilities have also become commonplace with workspaces, concierge services, communal roof terraces and gyms all making up the PRS ‘lifestyle formula’. This creates a sense of luxury and community, increasing the likelihood of tenants renewing their tenancy.
PRS Investment Popularity
For PRS investment, the common strategy is to consider income over long periods. For property companies, large pension funds and bigger companies, PRS represents a non-volatile, high-quality investment that delivers long-term returns.
PRS development investments survive on rising house prices and rising rents, which loops back into the long-term returns strategy mentioned earlier.
The Private Rented Sector remains the second largest sector within the UK housing market and can offer opportunities for scale investment, long-term cashflow and better portfolio diversification.
A rise in tenants preferring short-term letting also highlights a clear opportunity for success in PRS developments. With more young people opting to pursue a more transient lifestyle, renting affords a flexibility not possible with home ownership.
While this places more strain on the market and pushes demand for rental accommodation, it does mean that the right PRS development can make for an incredible investment.
Regional cities, in particular, are becoming popular with key tenant demographics but are suffering from the nationwide housing shortage. This obviously plays into positive supply and demand conditions for you as a PRS investor.