Small but Mighty: The Rise of Studio Living
As the rental market changes, we’re always looking ahead to trends that could benefit investors. Something we often talk about is residential undersupply in UK cities, caused by renters moving to these major locations to be at the heart of the action.
It comes as no surprise then that developers and investors alike are looking to create more affordable and flexible residential units to meet this demand. With that in mind, we’re examining the rise of studio living and answering the question – are studio apartments good investments?
What is a studio apartment?
Popular throughout the world, a studio apartment is a ‘self-contained’, stylish and compact living space. Offering affordability and flexibility, studio apartments are often a practical alternative for tenants that want to be at the heart of a prime destination but don’t want or need a larger space.
This is especially true of the current rental market. What started as a small ripple several years ago has grown into a wave of popularity, as renters prioritise living in city centres. Whether it’s students flocking to the city for university or professionals seeking bigger and better job opportunities, the population of many cities is rising at a rapid rate and studio apartments are ideal for meeting this demand.
For investors, this level of undersupply and rising popularity of studio apartments represents a key opportunity to invest in a prime destination at a lower cost and still receive the excellent returns provided by nearby amenities
Why are studio apartments popular with tenants?
First and foremost, studio apartments are obviously more affordable than their larger counterparts. At a time when more people than ever are choosing to rent, a lower price tag – particularly for people living alone that may have relocated for work – is incredibly enticing.
Studio apartments are also excellent for energy-efficiency, typically providing cheaper bills across the board. It’s much easier to heat a studio apartment in the winter and keep it cool in the summer, meaning tenants can reduce their outgoings.
Tenants that move closer to work or nearby amenities can find further savings, cutting down on commute costs and property costs at the same time.
Secondly, studio apartments are much easier to clean and maintain. While a larger space might seem nice at first, it costs more to furnish and takes longer to clean. For young professional tenants that work long hours or older tenants that aren’t as mobile, a more compact design can make for a tidier, happier home.
Many new studio apartments are also inherently ‘on-trend’ in the current market. Modern, open-plan living is on the rise and developers are taking note, offering clean, smart interior design that is resonating with the rental market.
Benefits of a studio apartment for investors
So how do studio apartments benefit investors? Are studio apartments a good investment? Simply put, it all comes down to location.
It’s something that we always mention but it bears repeating, the location of your investment has a huge influence on your success. If your location is in demand and has amenities nearby, there’s no reason why a smaller apartment can’t deliver comparable – if not higher – rental yields than its larger counterparts.
Studio apartments are particularly attractive because of high capital appreciation and rental yields. Andrew Donnelly, CEO at Whiterock Capital Partners, believes studio apartments can provide rental yields between 1% and 2% higher than one bedroom and two-bedroom apartments.
“Studios offer yields closer to 6%, whereas one-bedroom and two-bedroom apartments will generally provide a yield of around 5%.”
Rightmove research reinforces this, with the average studio in Birmingham achieving a rental yield of 5.8%, nearly 1% higher than the average yields delivered by one-bedroom and two-bedroom apartments.
It’s also worth considering that living alone isn’t as rare as it once was. Whether it’s a young person moving for their first graduate role and desiring more privacy or simply an older person downsizing and living alone, these people are looking for residential space within their budget and are happy to pay if amenities and comforts are nearby – not uncommon if they’re moving to a city.
Finally, rental demand continues to reach new highs. The private rented sector in the UK is still on track to make up 25% of the total housing market in the next few years and ‘Generation Rent’ are renting for longer periods of time, giving investors a consistent source of trusted rental income.
Bracknell: A prime example of the market shift?
When we talk about rising populations, residential undersupply, massive regeneration and a changing attitude towards renting, there’s perhaps no better example than Bracknell in the South-East of the UK.
Home to a population of 120,000, Bracknell is experiencing some of the highest population growth, property price growth and amenity-led growth in the country.
Over the next 20 years it’s expected the population will jump by 17.5%, as young professionals seeking higher-level career opportunities and those leaving London for more affordable markets, will help cement Bracknell one of the clear success stories in the South-East.
That said, a rapidly rising population means Bracknell is suffering from the increased demand that is plaguing cities such as Birmingham, Manchester and Liverpool. As people move to Bracknell for its affordability (it’s around £360,000 cheaper than London and only an hour away) and job opportunities (Bracknell is home to companies such as Honda, Dell and HP), there’s still a distinct lack of units such as studio apartments in the town.
In our research on Rightmove, we found 0 studio properties to rent in Bracknell, demonstrating a clear niche that is going untapped. Young people that want to live in a forward-thinking location such as Bracknell have no access to the modern, affordable and flexible spaces that you might find in bigger cities.
This represents a clear gap for investors that want to take advantage of Bracknell’s forecasted growth. It’s expected that prices in the South East will outpace the national average by 2022, meaning now is the time to invest in a town that has a bright future.
No.1 Thames Valley is a part of this future, set to be a focal point of the Thames Valley skyline and a prime residential development for the town. Luxurious, open-plan and built to a cutting-edge specification, No.1 Thames Valley will maximise the investment potential of Bracknell and provide tenants with easy access to some of the world’s leading tech businesses.
Set over three floors and surrounded by private landscaped gardens, No.1 Thames Valley features 101 stylish, open-plan executive studio suites, meticulously crafted to meet the needs of the modern professional.