Editors Note: The following content has been provided by Mike Gorman, Senior Director, CBRE’s UK Development & Residential Capital Markets team:
Investors are attracted to Leeds’ multifamily housing market, which nearly doubled in 2020, with early deals showing positive sentiment in the sector and expected significant growth in the coming years, according to the findings in the first edition of our European Multifamily Housing Report.
This latest report gives us a snapshot of residential property markets across 18 countries and 40 European cities.
The rapid rise of multifamily housing (MFH) as an asset class across Europe has been underpinned by growth in the wider private rental sector (PRS). 31% of European households now live in private rental homes, up from 26% over the last decade. This reflects a range of social and demographic trends.
Commonly referred to as the ‘gateway to the North’, Leeds has transformed into a thriving, modern city with a diverse economy and broad employment base.
With a population of 794,418, Leeds has the third largest economy with the second largest legal and financial centre in the UK. Employees within these sectors are high earners who are able to pay premium rents. With its five universities, Leeds is one of the top tertiary destinations in the UK, attracting 60,790 students.
With a lack of up and running MFH schemes, the majority of rental stock available in the city is generally not purpose-built for the rental market and often over a decade old. As a result, even in a challenging year, MFH operators with superior stock have still been able to capitalise on pent-up demand from renters in the city centre, with an average per sq ft rent recorded at £20 per annum.
MFH investment in Leeds almost doubled to £98 million in 2020, proving just how keen investors are to enter this market. In terms of yields, Leeds is currently at 4.25%, which has been stable over the last year due to a lack of stabilised stock and MFH opportunities to date, and we expect yields to remain stable.
The prospects for MFH are very promising, but the city is further behind the development curve, compared with neighbouring cities. Nevertheless, there are three major schemes – Mustard Wharf, Yorkshire Post and Fabrik – due for completion 2021, all of which are focused on being premium offerings.
The investment market started the year positively with the acquisition of Tower Works MFH scheme by Legal & General and PGGM and the sale of two significant BAM Properties sites to HUB Group in early January 2021. These deals are indicative of the positive market sentiment and we expect to see significant growth in the market over the coming years. We expect yields to remain stable. As the local market matures, it may show similar attributes to neighbouring Manchester.