Are city centre new-build apartments a good BTL investment?

Often it is believed that new build apartments in the city centre are the best buy-to-let investments, but are they still a good investment? Here we will examine the pros and cons of this particular property type.

Why City Centre Apartments (Can) Make Great Investments:

The following are some of the main reasons why new city centre apartments make great buy-to-let investments:

  • The letting yields on city centre apartments are often good. City apartments are often cheaper to buy than suburban property but often have higher rents, meaning yields can be higher.
  • Flats in city centres are often in high demand, from people wanting to live in city centres and have good access to public transportation. City centres offer a variety of rental options. As well as being available as short-term lets or serviced apartments, city centre apartments are available for professional tenants, sharers, and students.
  • Buy-to-let investments in city centres are easy to own and manage. Investing in them can be ‘hands-free’. Buildings, communal areas, and outside areas are maintained by a managing agent. However, there are usually service charges to pay.
  • There are plenty of options when it comes to buying an apartment in the city centre. Compared to resale properties, new apartments are much easier to find and buy. Investing in new builds is also a scalable option. The number of new apartments you can purchase depends on your needs and budget.
  • Often, new build apartments in city centres are located in areas that are experiencing regeneration and improvement. In these areas, money is often invested which can increase property values.
  • New buildings are scarce in some city centres, such as historic ones. There is a good chance that new properties will be highly sought after and prices will appreciate.
  • As the name suggests, new-build apartments are brand new. Due to their modern features and contemporary design, they are often very popular among tenants.
  • In general, new-build properties are the most energy-efficient. Their low running costs also make them popular with tenants.

Current Market Conditions:

There is no doubt that the property market has changed over the past few years. When considering whether new city centre apartments are still good investments, consider these factors:

  • As a result of Covid, many people began to realize the importance of outdoor space to their health and wellbeing. There are very few new apartments in city centres with outdoor spaces. Even parks are not available to many.
  • More and more people are working from home these days. It is no longer necessary for some employees to work from the office. Therefore, there is no need to rent or buy property in city centres.
  • In search of more space, some people living in city centres moved out to the suburbs and countryside.
  • The future of the economy is currently causing some concern. A reduction in city centre employment could reduce the demand for living in city centres.
  • Competition from PBSA. Student accommodation apartments are plentiful in some city centres, and more are planned. Private landlords face increased competition in the student rental market due to PBSA apartment developments.
  • In some cities, there are plans to build thousands of new apartments in the city centre. Apartments in these locations may be more difficult to rent because of the high new supply and limited future demand. As a result, their value may not increase as much as it would have otherwise (or it may even decline).
  • As a result of concerns about the economy, new build city centre apartment developers may scale back their plans. There might be a slowdown in supply. In the future, there may be a shortage of this type of property.
  • Competition from build to rent. Some cities are becoming more popular with build-to-rent or BTR.┬áLarge developers and financial institutions finance and develop build-to-rent apartments with the intent of renting them out rather than selling them.┬áPrivate landlords are faced with more competition in the city centre rental market because of build-to-rent apartment developments. In some city centres, investors are building blocks of studio flats with communal amenities as part of co-living schemes. In addition, they can increase competition for apartment rentals.
  • There are some new build apartments in city centres that have issues with the cladding, e.g. doubts over the fire safety of the cladding which has been used on the exterior of the building. The owners may find it difficult to sell their apartments if the situation is not rectified.

Considerations

There is a good chance that city centre new build apartments are still the best investments, but there are also some drawbacks! Several factors determine the answer.

  • In general, it depends on the property. Pricing and rental potential are factors to consider.
  • Investments depend on the city. A lot depends on the local economy and the local property market.
  • Look at local prices and rents when considering a new build apartment in the city centre. Calculate your letting yield.
  • Demand and supply should be considered. Take a look at upcoming new build apartment schemes. Consult letting agents about demand levels.
  • Take into account the local economy. Consider the number of employers in the area. Do those employers plan to expand or contract? Would they like to increase or decrease the amount of office space in city centres?
  • You should also consider the local market for student housing and for visitor (and tourist) accommodation.

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