Expected Rental Yields in Slough 2020
For property investors adopting a long-term strategy, rental yields are one of the most popular ways of measuring the success of a location or an asset, clearly demonstrating potential returns and allowing investors to tailor their strategy accordingly.
With London prices only just starting to show signs of recovery as we head into 2020, the surrounding London Commuter Belt continues to represent one of the most exciting regions in the UK. As a top location within the rapidly growing Commuter Belt because of Crossrail and excellent job prospects, Slough continues to be a key target for investors due to the world-class amenities and huge regeneration that it is currently undergoing. With this in mind, for investors going forward, what are the expected rental yields in Slough in 2020?
Average Rental Yields in Slough
Slough remains an established commuter destination and property hotspot. With increased affordability, improved transport links and a £1 billion regeneration project, Slough is much more affordable than London with an average of £379,254 against £628,416. Due to these factors, Slough has seen better growth over the last five years, 19% within Slough versus 12% within London.
This affordability, on top of the improvements currently being made to the local infrastructure, has all contributed to Slough’s above-average rental yield performance, currently sitting between 4% and 5% according to TotallyMoney.
Looking ahead, prices in the South East are set to outpace the UK average by 2022 according to PwC, increasing by 3.3% on average over the next three years. This cements Slough as a growth hotspot, with JLL ranking the Commuter Town as having the 4th highest ‘long-term potential’ along the wider Commuter Belt.
At the same time, Slough is building on a total regeneration of its existing landscape, transforming the local skyline with iconic new landmarks alongside mixed-use residential, commercial and infrastructure developments. Slough has taken the opportunity to attract those leaving a London market that has been falling over the last five years, redefining the amenities available to ensure demand remains consistent. With 46% of homes in Slough currently let to people leaving the capital, this has had a knock-on effect on rental yields.
Rental Prices on the Rise?
Slough has the highest concentration of global companies outside of London – contributing to an economy that delivers a turnover of £9 billion. Slough is using this commercial foundation to attract working professionals that want a high-standard of career opportunities without the expenses of a market such as London.
With a gross value added (GVA) – essentially the value generated by anything that engages with the production of goods or services – of £82,000 per worker, Slough is the most productive urban area in the country. This puts it ahead of both the national average (£57,000) and London (£80,000), further demonstrating the sway it holds with working professionals.
As you’d imagine, this plays a huge part in the future of the rental market. As more and more people move into towns and city-centres to be nearer to their workplaces, quality residential accommodation becomes vital. According to the Royal Institute of Chartered Surveyors (RICS), this translates to a rise in rents of 15% in the wider UK over the next five years.
Another significant factor is the continued decline in 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. Slough can offer the same quality work opportunities, a cheaper lifestyle and still offer direct access for those that still want to work in the capital, making it one of the top destinations for both London movers and commuters – 34,700 commute inward while 30,900 commutes outward.
Data from Homelet shows that during September 2019, average UK rents rose by 2.5% compared to the same month in 2018. As more and more people look to rent and Slough continues to offer such a high standard of living, it’s expected that Slough may outperform this UK average thanks to the overperforming South-East.
Best Property for Rental Yields?
For Buy-to-Let property investments focused on generating solid rental income, Upad research shows that the number of bedrooms within the property and the property type itself will have a huge effect on the overall outcome.
By taking into account average property type prices, as well as looking at average asking rents, we can see which property is ideally suited to delivering quality rental yields.
The Upad data suggests that the best property for delivering rental yields is a two-bedroom flat, followed by one-bedroom apartments and three-bedroom apartments.
With these numbers in mind, it’s expected that a two-bedroom apartment in Slough would be the optimal combination for building consistent and above-average rental yields.
However, the data also shows that if the budget isn’t available or the strategy doesn’t fit a two-bedroom apartment, a one-bedroom apartment can deliver above-average yields. This property type will also typically appeal to professional tenants, which might fit a certain investor strategy.
Avoid the Void – What Will Affect Your Rental Yield?
Rental yield can be affected by many different elements that can have an impact both before and during your investment. As you’d imagine, yields are incredibly dependent on surrounding demand and the popularity of the market that you’re investing within, which makes proper research key. You should always perform your due diligence within a potential market but understanding future demand and the effect that local developments will have on the area can mean the difference between a failure and a success.
How can growth affect my rental yield?
Things to look out for? Career opportunities, regeneration, residential undersupply, excellent connectivity and exciting leisure spaces. Once you’ve identified these positives, you’ll have a better idea of the tenant demand you can expect and already started safeguarding against void periods.
This is why Slough is such an exciting investment locale – it’s currently undergoing an extensive programme of regeneration estimated to be worth around £3 billion that includes the redevelopment of shopping centres, cultural hotspots, leisure facilities and mixed-use, co-working commercial space. This is all vital for meeting the needs of residents and encouraging further demand, especially in Slough’s case as the town is a key alternative to an expensive London market whilst maintaining an easy commute.
If you want to avoid any challenges that arise as a result of void periods, investors tend to keep a ‘rainy-day’ fund in hand. There may be times when your property is empty and not delivering income, which can be damaging financially. An ‘emergency fund’, so to speak, allows you to mitigate these payments without dipping into your finances.
Slough itself is particularly exciting for investors because of consistent future demand – especially with the introduction of Crossrail. One of the most important developments for Slough, Crossrail is a £14.8 billion rail line that will heavily impact the South East market going forward. Officially named ‘The Elizabeth Line’, Crossrail is aiming to build direct routes between key destinations across the region – including the capital – as well as improving travel times and increase carrying capacity. Plans show that when it goes live, Crossrail will put another 1.5 million people within 45 minutes of central London and is a key driver in the strength of Crossrail property.
For investors, the completion of Crossrail should be on the radar. According to the GVA Crossrail Property Impact Regeneration study, “the core influence of Crossrail in value terms appears to be that it reinforces the strongest markets”. The same report forecasts that Slough will see a 19% property price uplift by 2021 and 29% before 2026, as Crossrail adds to a world-class network of travel links that will soon be joined by the Western Rail Access to Heathrow.
It’s expected that in 2020, Slough will continue to benefit from the growth occurring across the wider South East. With key developments approaching completion and an increasing focus on flexible mixed-use space, transport and amenities, Slough is ensuring that the increased demand has the amenities it requires.
Building on Slough’s established connectivity is vital for encouraging growth and both Crossrail and Western Rail Access to Heathrow will help encourage commuters looking for affordability and quality to choose Slough.
Predictions also show that the town’s population of 145,000 will grow exponentially as these transport links complete. With ONS statistics showing that nearly 340,000 people left London in 2018 alone, the year-on-year number has risen 33% since 2012 and many of these people are expected to choose Slough amongst other commuter towns.
This is leading to a huge undersupply for Slough – where nearly 42,000 people are renting and there is a serious lack of quality property available. All in all, this has created a competitive market going forward that fosters rental price growth. With the national average already showing signs of increasing, Slough stands out as a special case thanks to its once-in-a-generation regeneration project and the introduction of Crossrail – both of which will play a huge part in driving expected rental yields in Slough in 2020.