Andy Foote is director at property investment firm SevenCapital,
After over a year of turmoil, July 19th 2021 marked ‘freedom day’ for the UK. Gone are the days of mandatory social distancing and face coverings, replaced by life after lockdown and a wealth of possibilities. While our newfound freedom signifies many things, there’s hopes that the full vaccine rollout and reopening of the hospitality sector could catalyse both an economic rebound and further positivity throughout the property market.
While the pandemic has had a huge impact on the economy and multiple industries across the UK, the property market has come away relatively unscathed. Not only has the average property price skyrocketed, but the rental market has seen positive change beyond measure.
With average rents soaring and more investors looking to the buy-to-let market, what should be considered when investing in a post-pandemic world?
New tenant demands
One of the many ripple effects of Covid-19 has been the significant changes in tenant demand across the rental market. Although the priorities of tenants are constantly evolving, there’s always been fundamentally common priorities – city-centre living, affordability and transport links nearby – while bustling locations such as London were traditionally the most popular.
However, numerous national lockdowns and ‘stay at home’ instructions catalysed drastic changes in tenant demands and subsequently, a London exodus. As more tenants spent their time working and living in the same space, almost 25% of movers over the past 12 months cited more space as their main priority, with many tenants willing to pay more provided they had larger spaces.
Not only were tenants searching for an increased number of bedrooms, but access to any kind of outdoor area – whether that be a garden or a balcony – was also a significant driver. 27% of movers over the past 12 months relocated in search of this luxury.
Amongst three age groups spanning 18-44, over 80% of each demographic picked an increased number of bedrooms as a key priority within a living space, while connectivity became more important amongst 50% of 18-24 year olds. With almost half of this demographic eager to get back to the office, this level of connectivity was crucial for these tenants in order to have the best of both worlds – life in more suburban spots, yet an easy commute to work.
Tenant demand is at the root of a successful buy-to-let investment, and with these new factors, prospective investors need to consider this when deciding on property types.
For a lot of tenants and homeowners, the appeal of London has been slowly but surely fading over the last five years, but where are they going?
While Londoners leaving the city once capped their property search radius to 20 miles around the capital, the pandemic has boosted this to 40. Spanning the majority of the South-East and the ‘outer commuter belt’, tenants are willing to go further afield in search of greener prospects. Fortunately, this means property investors now have more opportunities to broaden their horizons when looking for buy-to-let properties in the South East.
Similarly, London’s decline has allowed other key UK regions to flourish. The Midlands has long been a thriving region in the UK, with Birmingham having established itself as the second city and a top destination for the London ‘exodus’. However, as 20% of movers in 2020 looked to escape the hustle and bustle of the capital, the East Midlands became a more popular choice amongst these tenants.
With the likes of Derby, Nottingham and Leicester – affordable regional cities providing a high standard of living – making up the East Midlands, it’s no surprise that 42% of new registrations at the regional Savills branch were from London postcodes. Combined with the rise of the South-East, these hotspots offer prospective investors a wealth of new opportunities.
Not only can investors expect more variety when it comes to choosing a buy-to-let location, but they can also reap the rewards of this increasing demand. While London’s average rental yield currently stands at 2.38%, the South-East is reaching 3.27% and the East Midlands far surpasses the UK average with 3.85%. So, for those looking to invest in property in a post-pandemic world, considering different locations is key, with the opportunity to not only find a more affordable property but find one offering potentially higher returns.
Don’t ‘time’ the market
In the world of property, investors have long tried to ‘time’ the market. With the hope that affordable prices on an upward trajectory will fall in line with both attractive interest rates and an investor’s financial plans, this perspective has sometimes instilled a sense of false confidence in many investors over the years, where jumping in at the right time is a priority over longevity.
However, if the pandemic has taught us anything, it’s that the UK property market is unpredictable, to say the least. With Covid-19 catalysing a recession and pushing unemployment rates, the outlook for the property market was bleak and yet it thrived, buoyed by the Stamp Duty holiday and a mass of pent-up demand.
As always, this was a clear example of why time in the market always beats timing the market. There will always be peaks and troughs in the sector but the important factor is longevity, where property can thrive as an asset.
In the height of the global pandemic, the UK property market defied all expectations, when we least expected it. The economy was crashing and it would have been near enough impossible to predict the growth we have seen.
This is something that investors should remember in their next investments, and instead, should invest based on their personal positions and time in the market. Property investment is a waiting game, one of which is potentially more lucrative on a long-term basis, so if you’re in it for the long run, your financial goals should be more reachable.
As we continue to embark on a post-pandemic property market, it’s understandable that prospective investors might be hesitant about what the future holds. However, investors now have the luxury of hindsight, so instead of waiting and trying to ‘time’ the market, investing based on what we have learnt could be a much more effective approach.