Optimal Rental Premiums in Multi-Floor Buildings

The private rented sector (PRS) and build-to-rent market are the fastest growing segments of the UK housing market. Professional landlords, both private individuals and global institutions, are vying to get their hands on the best opportunities.

As always, there are many factors to consider including number of rooms, location of the property, and height of the building. This time, we crunched the numbers for over 168,000 properties across the UK to calculate the rental premiums (and discounts) for flats in multi-floor buildings, starting on the third floor.

As expected we found that the value of the property rents increased for flats that were higher up in the building. On average, the rent increased by half of a percent with each additional floor.

As the graph shows, flats on the third and fourth floors did not adhere to this pattern. In fact, they were actually slightly discounted overall. This data was most likely skewed by the inclusion of some regular urban dwellings that do not exceed several floors. The effect may be different in multi-floor tower-blocks.

The other anomaly appears on the sixth floor, which showed a significant discount. There were no apparent explanations in the data, so this point will remain a mystery for a little while longer.

As to be expected, there is a point of diminishing returns. In the rental market, the threshold is at the 13th floor.

Most of the data conformed to the expected curve, but there was a big spike on the 18th floor. According to our data set, there were not many residential buildings exceeding 18 floors, so the 18th-floor flats may have been super luxury units and penthouses. To equalise the data, we removed the handful of values that had a premium of more than 100 percent of the local market price (to eliminate the luxury units), and the graph becomes much tamer.

Following the trendline, the flats that yield the highest rental premiums are somewhere between the 11th and 15th floors of a building. Units below the 11th floor and above the 15th floor were more likely to have a lower premium, and at the extreme ends, there may even be a discount compared to the market.

The next quest, of course, is to look at where rental and pricing premiums match up to find the unique opportunities.

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‘REalyse (Treex Ltd) does not provide any form of investment advice or property advice or any other regulated function. Note that any information or opinions, presented or referred to in this article are for information purposes only. Any actions taken by a reader are done entirely at their own discretion, you are responsible for your own investment decisions and hold Treex Ltd harmless from the results of any such decisions’. Whilst every effort has been made to ensure the accuracy of the information herein some inaccuracies may remain.’