"When a man is tired of London, he is tired of life; for there is in London all that life can afford"
Almost 240 years after English writer, Samuel Johnson penned these words, the capital's private-rented property sector does indeed offer all that life can afford. From penthouses in Hyde Park to bedsits in Barking, London has a multitude of residential properties catering to its diverse and multicultural population.
For the savvy investor, this provides many attractive investment opportunities, although a rigorous and structured approach is required to identify those properties with the best rental growth.
At Aberdeen, we believe successful investment is based around triple A locations - those that score well on a combination of affordability, accessibility and amenity, and those that have the correct demographic profile and supportive housing environment.
Locations where the annual cost of renting plus the cost of commuting to work (the total cost of that location) are lower are rated highly for affordability. The most highly rated areas for accessibility are those with the lowest travel times to central London, though transport hubs and areas where there is potential for transport improvements also scored highly on the accessibility measure. The quality of amenities in an area is also crucial - the vitality of its centre, its retail and leisure offering and the presence of green spaces.
The level of house building in an area, environmental improvements and the proportion of houses in the private rental market is another way to identify trends in the private rental market.
But behind all these metrics are the people renting the properties. So to find the properties with the most potential, we must also understand the area's demographics. The age and average earnings of the local population have a strong impact on rental rates in the area. Given the dominance of 20-40 year olds in the private-rented market, livelier areas with young populations are also likely to outperform those with ageing populations. Amenities that appeal to this demographic group are high-quality shops, cafes, leisure facilities and nightlife. As families are increasingly entering the rental market so the quality of local schools is another important consideration.
Using this information, we can compare and contrast different areas to identify the best opportunities. We classify locations into three different categories - value, functional and amenity.
- Value centres offer cheaper rents and are often in up-and-coming locations. Towns like Ilford, Essex, while offering fewer amenities, offer better value for money and have young populations, thus offering the potential for substantial rental growth.
- Functional centres like Harrow, North London, are more established, and from an investment perspective are perceived as less risky. They offer greater amenities but properties here are more expensive than in value centres.
- High amenity centres have plenty of shops, restaurants and nightlife with prices reflecting the abundance of services available. These centres are not just confined to central London locations like Stratford but also commuting towns such as Reading.
One suburb that has been transformed into an amenity centre is Stratford in East London. The area has excellent transport links (and a forthcoming Crossrail connection) and a bustling centre. The 2012 Olympics and the large Westfield shopping centre have boosted the local economy.
In March 2015, we decided to take part in Stratford's growth by purchasing 180 Stratford High Street, a 26-storey residential tower overlooking the Olympic Park. This property offers market-leading accommodation in one of London's key regeneration areas. Our aim is to let the retail units, maintain a high occupancy rate and achieve growing rental incomes.
London's property market has come a long way in the last 5-10 years but it continues to expand with vigour. In such a vibrant and diverse city, new and attractive investable opportunities are always waiting to be discovered. Samuel Johnson would not have been surprised.
In search of diversified income
Aberdeen's Property Trust Fund managers provide a summary of trends in the UK market over the last two years and discuss why property will continue to be an attractive asset class for investors.
The value of investments and the income from them can go down as well as up and your clients may get back less than the amount invested.
For more information on the Aberdeen Property Trust, visit www.bigpropertyideas.co.uk or call
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