Why Sheffield is a prime investment spot for landlords looking to enhance their portfolio

From its university scene to its industrial legacy, Sheffield is known for its rich Northern history – but with a range of major regeneration projects in-store and a growing population, could it also be the perfect place for you to purchase your next investment property?

It’s fair to say that 2020 has a bit roller coaster ride from a property market perspective. After the arrival of a new Government and the uncertainty of Brexit came the coronavirus pandemic and not one, but two national lockdowns. Forecasters were predicting property prices to plummet, and many landlords were concerned about the profitability of their rental portfolios.

But thankfully when the property market re-opened on 13 May following the first lockdown, the reality was very different. In fact, Rightmove reported its busiest month for over a decade, and according to Hometrack, property prices are expected to be up by 2-3% by the end of this year.

This means it’s an ideal time for investment landlords to consider their options and look at purchasing properties before prices increase too much. With average house prices less than those down south, we take a look at how the northern city of Sheffield stacks up as an area to invest in. Is the Sheffield rental market going places, stagnating or thriving?

Sheffield offers lots of opportunities for property investors

The reality is every area has potential for investors to make money from property. Property is one of the few investments you can purchase for less than it could sell for. For example, if a lease is short, a property needs to be sold within a few weeks or it is currently un-mortgagable so requires a cash investment, the sales market is limited and therefore the property reduces in value. Once bought, if the reasons the property’s value decreased can be resolved, then the property can be sold back on the open market for a profit, or rented out for an improved yield.

Apart from finding a good deal on a property, understanding what is happening in the local area that might help boost returns is worthwhile. Property prices will typically rise when there is a shortage of supply versus demand, and rental prices will rise when wages increase faster than the annual increase in the cost of living (inflation).

There are lots of things that will create this environment. For example, population growth boosts demand and if the number of new homes doesn’t keep up to house people, if there is a successful economy, this can drive prices upwards.

In many areas where population is growing, it’s mostly due to people living longer. Sheffield is no exception to this, the number of people over 75 is expected to increase by 20%, - but the difference here is that all ages are increasing, including the all-important future buyers and renters aged 20 to 24. There are more births than deaths in the Sheffield area, and the level of migration has also increased.  

To meet this demand, by 2038 Sheffield requires nearly 40,000 new homes to meet the needs of this growing population. If these are delivered, this will help to balance supply and demand in the area; but what tends to happen is that pockets of areas and properties are more popular than others, so demand and supply can still be put under pressure, pushing prices upwards.

Another driver of supply and demand is changes to transport. Currently Sheffield is expected to benefit from the HS2 rail link, which will improve the time to commute to areas such as London. This will potentially open up Sheffield to part-time commuters from London.

Employment boost in Sheffield to benefit landlords

The city of Sheffield is steeped in history, with links to metalworking that go back centuries. Steel is synonymous with Sheffield, and during and after the Industrial Revolution, Sheffield became a capital of the industry. But unfortunately, as the steel industry went into decline, it pulled Sheffield with it, seeing many famous firms go under and their employees left to try and find a new start.

After years of decline, the city of Sheffield has used its entrepreneurial spirit and determination to attract significant partnerships in the late 90s and early 00s, and over the past two decades, Sheffield has seen a dramatic resurrection, with significant investment and regeneration throughout the city. Strategic Economic Plan intends to generate 70,000 new private sector jobs, thousands more new businesses and boost the local economy by £4bn. If achieved, this can help drive wages and wealth in the area, which, naturally boosts property prices and rents.

In contrast the area is also a hive for innovation, with international companies such as Boeing, McLaren Automotive, Rolls-Royce, Tata and Toshiba. Together with the many business parks, including Sheffield Business Park, Tinsley Park, Europa Link and The Quadrant, Meadowhall, which attracts 24 million visitors a year, these companies all generate jobs which are likely to lead people to rent – either for the short or long term.

And there is more investment on the way with The Heart of the City II development in Sheffield City Centre, investing £470m development providing new shops, leisure facilities, restaurants, cafes, offices and homes across the city.

Invest in Sheffield’s university scene

From a rental perspective, Sheffield has a top university which brings in over 60,000 students a year, making it a good area for HMO room rents which can help boost yields. In fact, around one in ten residents in Sheffield are students. The University of Sheffield is based mainly around the city centre. Sheffield Hallam University also has a campus two miles away on Ecclesall Road – a vibrant, trendy area which is a hotspot for Sheffield student life.

And with funding tight for many students, more and more could be considering the northern city as a place to further their education because of its low cost of living. A recent NatWest survey suggested it was one of the top 10 most affordable cities in the UK, helping to keep its popularity from and education and value for money perspective.

What returns might a rental property in Sheffield deliver?

One of the key benefits of investing in Sheffield is it is still affordable to buy one or more properties and the yield be better than many areas located further south. Two-bed terraces are, on average, under £150,000 and let for £650 per month, giving a gross yield of 5.2%. And a three-bed family home worth £185,000 could fetch rent of £700-£800 per month, offering yields of just under 5%. While a four-bed detached executive home would cost under £300,000 and rent for just under £1,000 a month, giving a 4% return.

HMO room rents range quite a bit, but are typically around £100 a week or more if good quality. Be careful though, some areas will be popular with students, while others even a few roads away may not be. Understanding the different needs of student, health and retail workers as well as those choosing to rent an executive home is essential to know before you invest.

Talk to us about property investments

Before purchasing an investment property in Sheffield, we’d recommend taking the advice of a local property expert, as some areas in the city may be more over supplied than others. As property market experts in Sheffield, helping you find the right property, in the right area and street to deliver on your investment objectives is what we do.

Our team, headed up by Lettings Partner Rebecca Wood, is happy to help identify the areas where demand is outstripping supply. Being a qualified member of ARLA, Rebecca’s ample knowledge of the industry and the local property market serves her well, and she prides herself on delivering exceptional customer service. Get in touch with the Sheffield team to find out more.