If you’re considering investing in buy-to-let property it’s highly likely you’re looking for guidance as to what is a good rental yield in 2022?
As Steve Jobs once famously said, “If you look really closely, most ‘overnight’ successes took a long time.” Here at Thirlmere Deacon, we are keen to follow that sentiment, since we prefer to take a long-term view of our investments, factoring in what the property will be worth down the track to really harness the value potential.
That said, we also appreciate that short-term gains are also important for investors in the form of the rental yield. At the very least, a rental yield should cover your expenses as a landlord. But for the more lucrative yields, there is serious potential to make a profit on your investment in the shorter term, rather than having to wait until you eventually decide to sell your property to see any notable returns.
We’re focusing our rental yield analysis on the UK and Dubai, as although 5,400km of terrain separates the two, both happen to be key destinations for us with offices in each location.
Interestingly, there are positive trends for both sale and rental yields in Dubai and the UK, but for completely different reasons. So let’s take a closer look.
UK – What Is A Good Rental Yield?
The general consensus is that a rental yield of at least 5% in the UK is considered ‘good’, although, at present, the UK average yield stands at 3.63% according to Track Capital.
However, another way to look at low rental yields, is that often even a ‘low’ rental yield will often generate a better return versus keeping your money in the bank, where low-interest rates prevent your savings from growing.
But as with anything, why stop at average? For instance, developments Thirlmere Deacon has purchased include Longmore House in Birmingham which is achieving yields of 6-7%. In Derby Court in Liverpool, our clients are achieving 7%. Predicted yields for one of our newest opportunities, Vision in Manchester stands at 7.5%. All of these are healthy yields and exceed the current UK average rental yield.
The ONS also reported that rents rose by 2.7% in April 2022 compared to the same time last year, signalling the largest annual growth rate since 2016. The average UK rent now stands at £1,103 per calendar month.
UK Average Rental Yield Hotspots – June 2022
- NG7 (Nottingham) – 11.3%
- NG1 (Nottingham) – 11.1%
- BD1 (Bradford) – 10.6%
- M14 (Manchester) – 10.1%
- NE6 (Newcastle) – 9.8%
- YO10 (York) – 9.8%
- SA1 (Swansea) – 9.2%
- SO17 (Southampton) – 9.2%
- CF37 (Cardiff) – 9.2%
- SR1 (Sunderland) – 8.7%
Data – Track Capital
It’s clear from our own findings and the available data, that yields far above both what is considered to be good and higher than the UK average are attainable in almost all corners of the country. Where rental yields fall flat, is when the potential for the property and the area of itself are limited.
At Thirlmere Deacon, we carefully consider the area itself in terms of recent investment projects, connectivity to work and lifestyle opportunities, and the overall appeal the property would provide to tenants. These elements are then combined with excellent build standards, ensuring minimal maintenance costs over the lifespan of the property – this is in stark comparison with purchasing a doer-upper property as just one common example.
Although property remains a trusted tangible form of investment, as with any kind of investment you are looking to make, it pays to put in such research to maximise the potential returns.
That’s why we aim for rental yields above 6%, with our Hull Central Apartments having a projected yield of 8%. As the above data shows, it’s certainly possible to harness a strong rental yield in the UK and avoid those dreary averages, so long as you know what to look for and where.
Why Are Rental Yields Rising In The UK?
First and foremost, the housing shortage that has been looming over the UK for some time now hasn’t gone away. In fact, we’re falling way behind our targets to meet the demand for new housing, and with fewer options available for buyers, rents continue to climb.
For investors who are tuned into what tenants want out of a property, they can command far more for rent. But beyond having a good location and even a well-presented apartment, things have changed in the eyes of renters since the pandemic.
In essence, now remote or hybrid working is here to stay, tenants want accommodation that fits both their work and home life in equal measures. Therefore, quality build, stylish interiors and a plethora of amenities such as a networking hub, gym or outdoor terrace are becoming more popular within city centre apartments especially. Tenants want the autonomy of being able to do business in the same building in which they can reside. Plus, now they are not forking out on expensive season tickets just to get to work, professionals have more money to invest in where they live, and it’s quality they are after.
Dubai – What Is A Good Rental Yield?
Yield figure-wise, it is a similar picture in Dubai in that a ‘good’ rental yield is considered anything above 5%.
However, developer Select Group reports typical rental yields in Dubai are currently between 5% and 7%, which is much healthier than the average UK as a whole, factoring in Dubai is also a concentrated area versus an entire country.
As just one example, our Peninsula development in Business Bay has a projected yield of 8%.
Although both the UK and Dubai have their individual merits, low entry rates paired with high rental yields in Dubai remain an extremely attractive proposition for investors.
Dubai Average Rental Yield Hotspots – May 2022
- Discovery Gardens – 8.87%
- International City – 8.80%
- Liwan – 8.52%
- Dubai Sports City – 8.14%
- Dubai Studio City – 8.12%
- Remraam – 8.15%
- Al Khail Heights – 7.92%
- Dubai Production City – 7.78%
- Motor City – 7.74%
- Dubai Silicon Oasis – 7.57%
Data – Property Monitor (based on apartments)
Across the board, less than a handful of locations in Dubai achieved anything below the ‘good’ 5% average rental yield in May 2022. This means virtually all locations in the city produced a healthy if not excellent average yield.
As some of the developments, we are personally involved in reach completion, and as the rest of the city continues to take shape, it will be interesting to see how these figures then shift in the coming years – especially against the backdrop of so much excitement in the Dubai property market as a whole.
Why Are Rental Yields Rising In Dubai?
With so much construction work happening in Dubai, it is clear that a property shortage is not the reason behind the climbing value of property, and subsequently the rental yields that can be achieved here.
Instead, it is the city’s vast population growth which is driving up interest and therefore rental yields in the city. With a further two million residents expected to be living in Dubai by 2040, everyone who comes to work or even stay here on a short-term basis needs a place to stay.
Given everything we’ve highlighted about the UAE’s safety, political stability, lower cost of living, the opportunity for business and even the vast range of amenities the country has to offer – people from around the globe are viewing the UAE in a whole new light, and Dubai remains very much at the epicentre of this sudden interest surge.
The good news is that while rental yields are rising here because the city is yet to be completed, newer investors can still profit in the vicinity as well as in the longer term, especially with so many fantastic areas to discover across Dubai.
Top Tips For Achieving A Healthy Rental Yield
- Imagine yourself as the tenant – would you want to live there, and does the property and surrounding area give you everything you need to thrive?
- Look at the long-term potential of the area, especially if renovation or investment works are currently underway.
- Study market trends and research, which will help you understand what you can achieve in the short term, ensuring you can manage your everyday costs.
- Don’t be afraid to leave your comfort zone – as an example, locations such as Hull have fantastic yield potential and major investment has transformed the city and its reputation in recent years.
- Consult with our London or Dubai office to find the right investment for your needs – we can help guide your investment using our vast knowledge of the industry and current tenant markets.
Good rental yield 2022
As to what a good rental yield is in 2022, a number of factors come into play, but as we’ve highlighted here, certain locations offer greater opportunities than others. Location is the first step, thereafter the exact position of a property, and the property itself will have influence the achievable yield.
To learn more about investment hotspots and where to invest in 2022, get in touch, without obligation.