Cities are typically the driving force behind higher housing prices in the UK, but what makes city property the better investment option?

City centres have historically been the main driving force behind higher housing prices across the country. This is typically due to higher demand thanks to city centres being hotspots for activity, employment opportunities, and transportation links. But is there a chance that this could ever change? Will there be a situation in the future where city outskirts are favoured, or will city centres always be the smarter investment opportunity?

How do cities drive the property market in the UK?

There are several different ways that cities drive the property market in the UK.

• Holiday accommodation - With services like Airbnb, it’s become extremely popular to invest in rental properties that appeal to tourists. This allows for major returns on inner-city properties, especially those that are located close to major transportation links and tourist attractions.

• International students - A lack of international students in 2020 contributed to a major slump in the UK rental market. With universities and colleges opening up again in the UK, the demand for student accommodation has led to a 16% increase in annual rent from pre-Covid levels in 2018/2019.

• Corporation lets - Corporation lets allow a company to use properties to house employees for short-term stays and business trips. Major cities such as London are business hotspots, making this an important market to consider when investing in city rental properties.

• Cities are desirable - Lastly, cities are more desirable to live in. The improved transportation links, the job opportunities, and the prestige of living in an affluent area are all factors that raise the desirability of living within the city. This increases the number of opportunities that you have to market your business to different audiences.

Have city centers ever fallen behind?

The beginning of the 2020 pandemic set the stage for uncertain times in the property market. Throughout the initial year of the pandemic, properties saw a sharp decline in rental prices and there was a rush to move out of the city into suburban environments. This was largely enabled by telecommuting opportunities, allowing people to work from home, eliminating one of the biggest reasons for moving into a city.

Another big reason for this decline was the decline in overseas students. With international students forced to return home at the beginning of the pandemic, many properties close to universities and colleges were left vacant. The lack of tourists and overseas visitors also contributed to a decline in holiday rentals, particularly with Airbnb investors. Instead, these property owners turned to the long-term rental market but saw little success due to the lack of rental interest in major cities.

However, Zoopla reported at the beginning of 2022 that the housing market is seeing one of the biggest New Year bounces in the past five years. Average housing prices were up 7.4% compared to December 2020 and the time to agree on a sale is now faster than the UK average. This also coincides with overseas students returning to major cities and offices reopening, creating new opportunities for rental property investors with rental properties.

Why do property investors prefer cities?

Price growth

Price growth is a huge factor when choosing to invest in city property especially now that people are returning to major cities such as London. For example, rent in central London is skyrocketing with some areas seeing a 98% increase. Overall, inner London is seeing around an 11% annual rise, followed by Manchester where the rental market has seen a 9.7% increase.

City growth

Cities never really stop growing. As the population increases, so does the demand for housing and commercial properties. According to Gov.UK, Greater London is expected to see a 12.7% population growth between the years 2015 and 2025. Across the UK, a 6.7% population increase is expected. This means that there will always be opportunities to invest in rental properties within a city.

More options

Depending on where your investment property is located, there could be a plethora of options for you to see returns on it. There are rental markets, student markets, corporation lets, and even standard lets. You could appeal to tourists through Airbnb, or you could even work with the local council to provide affordable housing.

Conclusion

City centers will continue to grow in terms of both population and rental prices. While the entry price to invest in city property is higher, it ultimately provides more long-term opportunities for growth both within the price and rental returns.