Assessing UK property demand. The difference between profitable and unprofitable?

May 3, 2024

At a time when we have somewhat subdued house prices but strong rental demand, how can you assess sustained UK property demand?

Average UK house prices fell by 0.2% in the 12 months to February 2024, while private rents increased by around 9.2%, reaching a record high (ONS). (12 months to March). What does this picture tell us?

House buying transactions increased by 1.2% between January and February. With a mixed picture of price dynamics across the country:

  • house prices in England decreased by 1.1%. London experienced the lowest annual inflation, with prices dropping by 4.8%.
  • Wales saw a decline of 1.2%
  • Scotland experienced a rise of 5.6%
  • Northern Ireland, house prices increased by 1.4%.

Rental dynamics as an indicator of UK property demand

Assessing UK property demand - terraced house

Scotland saw the biggest increase in rents at 10.5% (which has ‘rent caps’ in some locations).

England and Wales experienced rises of 9.1% and 9% respectively. London had the largest jump in rents, rising by 11.2%.

Signs are that rental inflation is easing, as tenants struggle with affordability.

Why are we seeing this mixed sales and rent demand picture?

Economists have put the rental price increases down to an imbalance between supply and demand.

On the demand side – the number of people looking to rent has gone up. Many aspirational home buyers are not in a position to move forwards in the current climate of mortgage rates.

On top of that, record levels of net migration have compounded the issue.

At the same time, on the supply side some landlords have exited the market. Or been reluctant to invest in more properties, given higher borrowing costs and the higher burden of regulations.

So that is demand and supply, but what about profitability and cashflow? These are critical to the sustainability of any property business.

How to harness UK property demand to generate profit and cashflow?

It is important to answer a market need with the appropriate product. One that has relevance now and in the foreseeable future.

A key part of the equation is to consider the supply demand balance in an area and then to qualify what type of demand e.g. family homes, space for contract workers.

Housing supply, which is affected by a myriad of factors ranging from; ease of planning consent, general levels of bureaucracy, existing housing stock, to the cost of building and more.

Whereas property demand is influenced by the number and type of buyers and renters now, as well as in the future.

There are sectors which have big headline yields, but may take significant time and effort to make it work well e.g. HMOs (Houses in Multiple Occupancy).

Yet many types of rentals in the Private sector are becoming increasingly regulated in the UK. So it is even more important to continue to ensure that your investments are profitable and cash flow well.

What do we tend to look for as an indicator of UK property demand?

Infrastructure improvements or regeneration, act as a driver of demand in the locality.  New facilities such as roads, high-speed railways, the addition of significant leisure facilities, or new special economic zones that attract multi-national businesses, are all good for the local property market.

A property’s location within a city, its proximity to road and rail networks and the quality of schools and major employers are important. So you might want to consider there is usually a price premium attached to a property within 5-10 minutes of a tube or train station.

A special one-off event can give a fillip to the market. It could be hosting the Olympic or Commonwealth Games, or a football tournament which can provide a short-term boost. But it is important to assess whether that will translate into a lasting legacy and create strong UK property demand?

Inward investment by businesses provides a demand impetus to the area and its micro- economy. As businesses invest locally, or grow, they attract workers to the area, seeking homes. Their success brings affluence, creating not only potential home buyers for when an investor comes to sell (part of the exit strategy) but also increases demand, which in turn can drive up property prices.

Adjacent markets may deliver healthier yields than the main centre. Take the traditional markets of the capital city, London and other main city centres like Birmingham are attractive investments, but entry level pricing is not always that accessible.

By looking slightly further afield you can get more for your money. For example Teddington might be a relatively more affordability riverside spot in south-west London, particularly for families, than more vaunted places like Richmond or more central London areas.

Beyond these drivers you also need to take into account:

  • the differential between asking and actual sold prices and rentals (although the latter is more difficult to assess at scale)
  • Stock turnover (demand) and look longer term to consider whether the area is becoming saturated with a particular asset type e.g. PBSA (Purpose Built Student Accommodation) or HMOs

And ultimately ensuring you have the right product or strategy for that area.

At the end of the day property investing is marketing.

It is about understanding and assessing demand from customers (renters) and delivering the right product and service to them (house type and configuration) at the right price i.e. rental amount to ensure your business is profitable

My business Property Venture® is an award-winning, Boutique property consultancy focusing on helping time-strapped professionals and expats invest in property, so you can carry on your day job while building your wealth. I am a landlord, ‘prudent’ property investor and developer. I help others to invest ‘prudently’ either with a bespoke Property Finding service or in a supportive mentoring capacity. If you’d like help or to find out more do message me Or connect with me here