The university city of Oxford is the UK city in which housing developers could stand to make the most sizable returns from building rental developments. Further reinforcing the region’s investment potential, Oxford is also the city, along with its university counterpart in Cambridge, likely to see the strongest growth in tenant demand.
The Arcadis Housing Development Monitor looks at ten major British cities and calculates cost and profit potential, excluding Section 106 obligations and the additional cost of finance, of each location when it comes to the increasingly-popular build to rent housing schemes. On top of this, it also analyses exactly where tenant demand for schemes is likely to grow between now and 2024.
The report demonstrates that developing a standardised 150-home scheme could see returns of around 105 percent in Oxford, assuming the owners let out the homes for ten years before then selling the development. Edinburgh and Bristol come in at second and third place, generating potential returns of around 101 percent and 77 percent respectively. Meanwhile, even with the UK’s most expensive design and build costs, investors in the London* market could also see over 40 percent return on investment.
With UK house prices having accelerated much more quickly than wages for a number of years, large scale rental developments, known as build to rent, are potentially the most common tenure for the next generation of city dwellers. When it comes to future demand growth, there is little to choose between Oxford, Cambridge, London and Edinburgh, demonstrating the extent to which numerous opportunities are available throughout the UK.
However, although on the face of it schemes appear profitable, development may not necessarily follow, even where strong demand exists. Space in Britain’s cities is becoming increasingly limited. Restrictions such as the lack of flexibility around space standards also exist and need to increase the level of affordable housing allocation in response to mandatory requirements sees many proposed schemes fail to go ahead. Meanwhile, the additional cost of borrowing the funds to create these homes has the potential to deter some developers from committing to schemes.
*Cities are defined as in and around the city centre with the exception of London where South London (Zone 2 – 3) has been used for illustrative purposes
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The Arcadis Housing Development Monitor looks at ten major British cities and calculates cost and profit potential, excluding Section 106 obligations and the additional cost of finance, of each location when it comes to the increasingly-popular build to rent housing schemes.Download
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