Expected Rental Yields in Birmingham 2020
One of the most common goals for property investors – particularly those targeting long-term strategies – is rental yields. A flexible and adaptable form of income, rental yields are an excellent way to measure the potential success of a development or location. As one of the most exciting destinations in the UK, Birmingham is already in the hot seat for many investors, mainly down to the affordability it can provide and the exciting developments it’s witnessing. That said, what are the expected rental yields in Birmingham in 2020?
Average Rental Yields in Birmingham
Birmingham is performing above the UK average in terms of rental yields. Driven by large-scale, sustained investment into transport links, residential and commercial spaces, local amenities and global events, demand is at an all-time high for the ‘second city’. With future infrastructure plans connecting the city to London as well as the wider West Midlands, accessibility is a key USP for Birmingham and a major contributor to accelerating demand.
The average rental yield for Birmingham sits at around 5%, outperforming the national average alongside several regions in the South that average around 4%. According to data from LendInvest, the city centre is one of the highest-performing areas – B5, for example, is a city-centre postcode that regularly achieves between 5% and 6%.
These above-average yields are due to the transformation that Birmingham has undergone over the last 20 years or so. Now a major hub for business, with the largest professional sector outside of London attracting the likes of PwC and HSBC, Birmingham is also developing an exciting creative scene in Digbeth that has helped motivate the regenerative £1.5 billion ‘Birmingham Smithfield’ project.
The Big City Plan continues to drive progress and has directly contributed to an impressive development pipeline that includes The Bullring, Grand Central & New Street Station redevelopment, the Library of Birmingham, Paradise, Snow Hill, Arena Central and HS2. All of these developments are incredibly potent when it comes to attracting professional tenants and can be directly linked to rising rents and property prices, both driving and fulfilling demand.
With the 2022 Commonwealth Games on the horizon, Birmingham will start the new decade off with a strong base from which to expand, creating exciting new destinations across the city and attracting waves of both foreign and domestic investments.
Birmingham Rental Prices on the Rise?
There are some incredibly strong fundamentals that are helping boost rental properties in Birmingham. ONS forecasts suggest that the population is expected to grow by 20% by 2039, taking the total to 1.3 million people. The market is also expected to be very competitive thanks to continued residential undersupply throughout the city. Data shows that Birmingham needs around 89,000 new homes by 2031 but space for around only 51,000 has been identified.
This will have a huge impact on the rental market as people flood into the city looking for quality accommodation near world-class career opportunities at the heart of the action. It’s expected this will translate to a general rise in rents of 15% over the next five years according to the Royal Institute of Chartered Surveyors (RICS).
Another significant factor is the continued decline of London. While the market has started to stabilise at the time of writing, it’s still a massively unaffordable market for many buyers and renters, meaning they’re looking elsewhere. Birmingham offers the same high-standard of living while still remaining relatively connected, making it one of the top destinations for London movers. This translates to around 16,000 people moving from London to the West Midlands in 2018, with 7,600 of those choosing Birmingham City Centre.
Best Property for Rental Yields?
If you want a traditional Buy-to-Let investment designed to maximise rental income, what should you be looking for?
Research by Upad has shown that the number of bedrooms available definitely has an effect on the best property for rental yields, as does the property type itself. Taking into account the average asking price of various flat sizes as well as looking at average asking rent, we can identify the best properties for rental yields. The data shows that the optimal property for maximising rental yields is a two-bedroom flat, closely followed by a one-bedroom apartment and then three-bedroom apartment.
With this in mind, according to the data we’ve collated, a two-bedroom apartment in Birmingham would be the optimal combination for building consistent, efficient rental income. 105 Broad Street in Birmingham, for example, is projected to deliver rental yields of 5%, well above the national average and one of the higher yields in the city.
Birmingham Top 10 League Table of Rental Yields
|Location||Area||Avg yield||Avg price||£/sqft|
|Jewellery Quarter, Hockley||B18||5.90%||£166,644||£164|
|Digbeth, Highgate, Eastside||B5/4||5.10%||£211,000||£258|
|Perry Barr, Kingstanding, Great Barr||B44||5.10%||£154,392||£164|
|Smethwick (east and north), Bearwood (east)||B66||5.10%||£147,722||£160|
|Bordesley Green, Bordesley||B9||5.10%||£142,157||£134|
|Chelmsley Wood, Marston Green, Kingshurst, Fordbridge||B37||5.00%||£186,000||£180|
|Birmingham City Centre, Broad Street (east)||B1||4.80%||£219,266||£319|
|Smethwick (west), Bearwood (west), Londonderry||B67||4.80%||£167,592||£159|
|Kitts Green, Stechford||B33||4.60%||£168,936||£169|
Data sources: Property Data and Zoopla
What Will Affect Your Rental Yield?
Several elements can affect your rental yield – both before investing and during the investment.
Supply and demand plays a huge part in the quality of the rental yield, as does the location itself. With the right preparation and research, investors can identify markets that are forecasting consistent demand. If you’re an investor, you’ll want to be identifying the future development pipeline as this can help keep demand fulfilled alongside the standard of career opportunities, regeneration, residential undersupply and connectivity.
How does growth affect rental yields?
Rental yields are particularly affected by redevelopment and regeneration – two things that Birmingham is experiencing across the board. From new infrastructure projects such as HS2 to huge mixed-use developments as part of the Big City Plan, Birmingham isn’t just growing in scale, it’s also got a rapidly rising population – a clear signpost of rising demand.
This is why Birmingham is such an exciting location for investors. Rental demand is at an all-time high, running parallel with the incredible rise of the second city. As more and more developments are completed and world-class career opportunities present themselves, the city is attracting more ambitious professionals, encouraging a competitive market where investors can utilise higher asking rents.
How do ‘ready-made’ investments affect rental yields?
Finally, consider a ‘ready-made’ investment. The rental market is growing and increasingly, many investors are opting for pre-let residences so they can ensure immediate returns in the prime locations they’ve identified. If you can find a pre-tenanted, fully-furnished apartment in an emerging location such as Birmingham, you’ll not just benefit from the city’s above-average performance but also the growth that is set to happen over the next 10 years.
So what rental yields can Birmingham expected in 2020? As a raft of key developments continue to approach completion and Birmingham continues to deliver flexible, mixed-use space for both residential and commercial sectors, the second city is ensuring that it has the amenities to meet increased demand.
While Birmingham property prices are expected to rise by around 14%, rents in the city are also on the rise, meaning yields will stay fairly similar. Over the last year, the West Midlands has outperformed the rest of the UK with rents increasing by 4% from April 2018 to April 2019 according to data from Your Move. This puts it in the enviable position of seeing the strongest regional growth in the country, a trend that will only benefit Birmingham as the Big City Plan continues to transform the skyline.
Building on Birmingham’s established connectivity is vital and it’s easy to see why HS2 and Midlands Metro are so exciting for the future of the city. By building better connections around the West Midlands and towards London, Birmingham is ensuring that residents are encouraged to move to the city, increasing rents.
All in all, this will create a competitive market going forward and rental prices are expected to continue to rise. With both national prices and yields showing signs of improving, Birmingham will lead the way due to the level of regeneration it’s experiencing – prices have already seen the highest increase in the UK at 16% since 2016 – building on a solid foundation to ensure it remains ahead of the pack for growth.