What is the Most Desirable Property Type in Birmingham?
As a developer based in Birmingham, we’re often asked – what is the most desirable property type in Birmingham?
It’s a fair question. As we move towards a market that is increasingly focused on the product, it’s vital for investors to choose an asset that resonates with tenants.
While for the most part, the most desirable property type could be subjective depending on the goals of the investor, there is research to show that some properties generally perform better than others, particularly for the Birmingham demographic.
As demand for property in Birmingham continues to grow and regeneration in the city continues to attract both new buyers and new tenants, we examine the question: what is the most desirable property type in Birmingham?
What Does the Birmingham Rental Market Look Like?
The best place to start is with some context. The English Private Landlord Survey reveals that couples aged 25 – 49 make up the largest proportion of private renters.
Birmingham’s largest market is the private rented sector, home to a very young population with 21 – 24 year olds making up 21.9% of a population that is increasingly looking to rent. It’s fair to say that the age bracket mentioned above could represent a major proportion of Birmingham renters.
We also know that Birmingham city-centre’s average occupancy rate is 1.8 – highlighting that typically people are choosing to either rent as a couple or share, whether that’s with a friend, relative or another renter.
From this, it’s only logical that 2-bed properties will be most popular for those living within Birmingham city-centre. Having two bedrooms is necessary for relatives, friends or professional sharers and while couples could theoretically live in a 1-bedroom apartment, many are increasingly choosing 2-beds for the extra space.
Landlords seem to agree. In the same survey, 49% of respondents let to couples and highlighted a clear preference for the demographic. This could be down to several reasons: couples tend to bring a higher salary and thus have a higher average monthly income. At the same time, 67% of sharers and 50% of couples still expect to be renting in three years time, showcasing the longevity that these demographics provide.
So let’s imagine that demand is trending towards 2-bedroom properties. How do they perform in the market?
How Do 2-Bedroom Apartments Perform in the Market?
In terms of rental yield performance, research from several online property agents suggests that 2-bedroom apartments are typically the optimal property for maximising returns, delivering anywhere around 5%. In this research, 2-bedroom apartments beat all of the competition, including their 1-bedroom equivalent, which earned under 5%.
Also consider that UK properties, including 2-bedroom properties, have historically seen a substantial increase in prices over 15 years. According to Aviva, an initial investment of £268,000 in a 2-bedroom apartment could increase by an estimated £288,000 over 18 years – a huge increase based on 4.5% capital growth.
It helps that Birmingham is an affordable market and thus, much more accessible for investment. At the time of writing, Birmingham’s average property values sit at around £205,055. Now compare that to other popular markets such as London, which sits at £642,890. This is clearly much more expensive and London is still struggling to deliver anywhere close to a comparable yield.
Supply of these properties is also very low in Birmingham. The population is expected to rise by 10,000 people per year over the next ten years and yet housing supply is only expected to increase by 80,000 in total over the same 10-year period. This level of undersupply creates a very competitive market which is excellent for investors seeking growth. As demand goes up and supply goes down, prices are naturally pushed up as a result.
Finally, couples and professional sharers making up the largest demographic of renters is huge for a city that is pushing incredible investment into its amenities and commercial sector. There’s never been a better time to work in Birmingham and word has clearly spread, attracting some of the world’s most recognisable brands such as HSBC and PwC to relocate their UK headquarters to the city.
With this in mind, the answer to ‘what is the most desirable property type in Birmingham’ could easily be 2-bedroom apartments. While every investor is different and different assets will suit varying goals, a 2-bedroom apartment is widely recognised as the most flexible and in-demand asset within Birmingham’s city-centre, suitable for a wide audience and offering the facilities that the modern tenant is typically looking for.