Young Index Report Q3 2012

Young Index Q3 2012

Young Index Q3 2012

Each quarter, through Young Index, Young Group polls investor sentiment among 500 of its Private Rented Sector (PRS) investment clients who hold UK property assets.

Appetite to Invest in the PRS
46.8% of the investors questioned are considering purchasing additional Private Rented Sector (PRS) assets in London over the coming 12 months. The data shows that investment appetite for London property has increased compared to Q3 2011, when it stood at only 38.7%. (fig 1.)

Figure 1: % of Investors Considering Purchasing Additional Property

Figure 1: % of Investors Considering Purchasing Additional Property

In regards to the rest of the UK only 27.1% of the surveyed landlords are considering purchasing assets elsewhere in the UK, though this is up from 19.7% from Q3 2011. London assets clearly remain more appealing to investors than those outside the capital but the data shows that there is still a healthy appetite for PRS assets.

Among those not actively considering investing in London, the top reason given was the difficulty of acquiring financing, rather than a lack of confidence in the anticipated asset performance.

The lack of interest in investing in assets outside of the capital was attributed to the continuing belief that London leads the way in PRS asset performance.

Capital Values
94.3% of investors predict that the capital value of assets, in London, will increase over the next year. This is a increase in confidence in the London market of 16%, compared to this quarter last year. This statistic highlights the belief that the London PRS will continue to increase in value. (fig 2.)

Figure 2: % of Residential Property Investors Expecting Values to Rise or Remain Static

Figure 2: % of Residential Property Investors Expecting Values to Rise or Remain Static

Property values in London are expected to increase by an average of 1.8% between now and Q3 2013, whereas investors predict that values across the rest of the UK will fall by 1.1% over the same period.

Rental Outlook
When compared to the same quarter last year the number of investors predicting a rent rise in London has grown by 10%, meaning that 84.5% of investors expect the rents in London to rise over the coming 12 months. Investors expect rent to increase by an average of 2.2%.

Sentiment for the strength of the rental market in the rest of the UK is static with 54.3% of respondents believing that the rates will stay the same while only 34.3% believe there will be an increase. The data collected shows that the average expected rent change, for the rest of the UK, will stagnate at 0.3%.

Economic Outlook
In this quarter’s data, 55.6% of respondents expected that, over the next 12 months, the Bank of England Base Rate would remain static at 0.5%. This is a 10% increase on Q3 2011.

Property Management Views
Annually in Q3, Young Group gauges investors’ view of the value of property management services and their impact on returns.

76.4% of respondents stated that they believe tenants pay more for living in a professionally managed property, while 89.3% believe that having professionally managed property leads to tenants staying for longer. 83.7% of landlords also believe that professional management of property enhances its capital value, an 11% increase on Q3 2011.

To increase the return received from a PRS asset landlords should be looking to minimise unnecessary expenditure, such as on repairs and maintenance.

94.3% of landlords believe their expenditure on maintenance is lower when their property is professionally managed, due to the fact that tenants take better care of the property.

Interestingly, 88% of the landlords questioned thought that professional property management is money well spent and 89.1% would recommend property management to a peer.

As the PRS continues to see an increase in demand, it is particularly heartening to see that professional property management – and its impact on asset value – is so highly regarded amongst the PRS investment community.

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About Neil Young
Chief Executive, Young Group

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