Rental Yields in Derby

If you’re looking to maximise the returns of a property investment over the long-term, it’s important to focus on rental yields. While capital growth can happen organically and benefit you upon sale, rental yields offer flexibility – they can be reinvested, used as a financial safety net or used to pay off the mortgage, giving you leverage.

Despite strong growth over the last five years, Derby house prices means it’s one of the most affordable locations in the UK – a critical signpost for achieving better rental yields. In fact, the East Midlands saw the most impressive growth in both property prices and rents over 2022 based on ONS data. This growth in prices is occurring alongside strong population growth, with the population growing by 12,600 between the 2011 and 2021 census, and this trend is expected to continue with the population of broader Derbyshire expected to grow by 100,000 by 2043. 

This level of anticipated growth will cause increased competition for viable rental units, with such competition allowing investors to start generating much higher rental returns, while also underpinning rising Derby property prices.

At the same time Derby is progressing through the Derby City Centre Masterplan – a phased project that is aiming to revolutionise amenities in the city, simultaneously meeting tenant demands and encouraging population growth. The plan aims to leverage £3.5 billion in investment, produce 4,000 job opportunities and create 1,900 new homes, all of which will fuel the aforementioned population growth and in-turn drive up rental yields.

Average Property Price (Rightmove September 2023): £239,700

Average Rental Yield (PropertyData): 3.95%

5 Year Rental Price Growth: 15.1%

The average rental yield in Derby is 3.95% when we take an average yield from all postcodes on PropertyData. Additionally, property for sale in Derby is relatively affordable compared to the wider UK which has an average cost of £279,569 according to Halifax, making Derby property a comparably affordable investment to most UK units.

When we take into account the supply and demand imbalance – 20,000 people across Derbyshire are on social housing waiting lists, and it’s believed that 20 renters compete for each PRS unit – plus the long-term regeneration that is creating new amenities, we can see why Derby rental yields are trending positively for the future.

According to JLL, the UK’s average rent could rise by 12% by 2026, which gives buy-to-let hotspots such as Derby incredible potential for investors seeking long-term returns. At the same time, JLL has revised its price growth predictions and the East Midlands is expected to see prices rise by 16.5% between 2024 and 2027, which is likely to have a knock-on effect for rental growth. In fact, the East Midlands is set to outpace all regions outside of London for projected growth and is only matched by the South East, which has a far more expensive property price average, making the East Midlands a far more appealing alternative for investment.

There are several factors that impact a rental yield – namely supply and demand, the investment’s surroundings, the price of the property that you purchased and the willingness of tenants to pay the rent you’re charging.

Supply and demand arguably have the biggest effect. A more competitive market can easily support rising rents and property prices, especially if the amenities that attract demand are being built.

It’s always a good idea for you to research future development pipelines – whether they’re residential, commercial or public – to see whether you’re investing somewhere with sustainable demand.

Similarly, demand (and thus rental yields) can be positively impacted by the career opportunities nearby. If you’re investing in a big city for example with plenty of high-level employers, you can consider their workers as potential tenants who will have the income to meet higher rental returns – which means better rental yields for you.

At the same time, consider graduate retention. Today’s graduates are tomorrow’s ‘young professionals’ which make up a significant proportion of the UK rental market. With the University of Derby being home to 34,000 students, and an abundance of job opportunities on the horizon, this bustling city is immensely appealing for graduates.

One of the biggest drivers for rental growth in Derby is the Derby City Centre Masterplan 2030. This large-scale regeneration plan will fund new and exciting developments across the city, building the infrastructure necessary to meet the rising demand we’re already seeing. The plan will create 4,000 jobs and 1,900 homes by 2030, with huge regeneration schemes beginning at the Silk Mill and Assembly Rooms, aims for better digital connectivity and improved sustainable transportation.

Such ambitious projects will fuel Derby’s population growth. It’ll also allow investors to market their properties to a wider tenant base – the better the lifestyle, the easier it is to command higher rents. Additionally, in their latest report on the market, JLL predicts that by 2026, the East Midlands could expect an average rental price rise of 12%, highlighting the potential that property for sale in Derby holds.