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The potential of short-term lets in Manchester

November 24, 2022

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Article Summary

Manchester
  • A short-term tenancy is a property that is offered to tenants for up to 6 months, though it will often last only a few weeks or nights.

  • Tourism alone isn’t the only source of demand for a potential short term let, a lot of people fail to realise that a lot of bookings come from the corporate let market.

  • Recent fears of an oversupply of new housing in Manchester City Centre have actually prompted some developers to pause their activity and there is now a shortfall in the supply pipeline to meet anticipated demand. (JLL)

What is a short-term let?

A short-term tenancy is a property that is offered to tenants for up to 6 months, though it will often last only a few weeks or nights. Short-term lets or Airbnb investments have always been an option for investors, but it has become more popular now that investors realise that they can significantly increase their returns, as long as they buy in an area where demand is high. This can either be from the corporate let market or the holiday maker/tourism sector.

Following the pandemic, short-term lets became an even more attractive option for buy-to-let landlords as people going on staycations increased. They also opted to rent out privately owned properties in comparison to bigger hotels as a result of the pandemic and lockdowns.

Why are short-term lets a good idea in Manchester?

The Tourism

With more visitors and tourists than ever, Manchester was named by global travel guide Lonely Planet as a top world destination for 2023 – the only UK city to feature in the highly sought after annual list. The city is in a list including 30 must-visit locations.

Lonely Planet mentioned the Manchester Museum, the Manchester Jewish Museum, the Factory International arts space and Castlefield Viaduct as notable tourist attractions, as well as ‘delectable’ food and ‘world-class’ sports.

Other cities included in the list are: Lima in Peru, Ghana’s capital Accra, and Sydney, Australia. It features other regions, states, and countries too: New Mexico, South Scotland, Zambia, and Jordan are there but Manchester stands alone when it comes to cities in England.

 

Why is Manchester so popular for visitors?

It’s not hard to see why it’s so popular as Manchester is brimming with history, it’s the birthplace of the industrial revolution after all. The city is full of character, sometimes obvious and sometimes hidden in numerous streets and alleyways. The music scene continues to be world leading with homegrown talent and huge artists playing in the city at the likes of Old Trafford Cricket Ground, Old Trafford stadium and the Etihad stadium. In addition to this a new world class venue is on the way, destined to be the biggest venue for live performances in the world.

We also can’t forget the two football clubs, Manchester United and Manchester City, two of the biggest and best football clubs in the world. Beyond the music and sport scene, the city is littered with museums, great food and restaurants, as well as independent one of a kind bars. That is all without mentioning the thriving theatre scene, with Disney’s ‘Lion King’ fully booked months in advance.

It is the capital of the North and offers so much to do and take in that it is no surprise that it has been on so many top destinations lists both for visitors and residents.

The tourism alone isn’t the only source of demand for a potential short term let, a lot of people fail to realise that a lot of bookings come from the corporate let market. Employees can come up North for training for a few days/weeks. They would be on short term contracts from anywhere between 3 weeks to 3 months. Beyond this you have many different conferences in the city.

The tourism demand alone is enough to sustain above 80% occupancies consistently. However due to the demand from so many sectors we are seeing occupancies hitting over 90%, on a consistent basis.

 

Population growth

Manchester is a city that has been growing in size at an increasing rate. From 2011 to 2021, the city’s population increased by 9.7%, from 503,100 to 552,000. This exceeded England’s population increase rate, which stood at 6.6%. The city is actually increasing at a rate 10-15 times the rate they can build property.

A report written by academics, journalists and members of Greater Manchester Tenants Union (GMTU) and Greater Manchester Housing Action (GMHA) detailed the impact of Airbnb listings on Manchester at its property market. Airbnb listings in Manchester alone increased by a staggering 226% from May 2016 – May 2020, however there is still a lack of supply, only 0.4% of the developments in the city actually allow short term lets to be operated. It is usually prohibited in the head lease.

The report extracted information from Inside Airbnb, and it detailed that more than 55% of all Manchester Airbnb listings are owned by landlords with more than one property. This highlights the potential in the short-term let market as landlords are realising that they can earn more money from Airbnb listings than a regular AST. Therefore, they are trying to capitalise, but they often can’t because not a lot of head leases allow this to be done. If you can find a project that is secure, from a good developer and in a key location, then you are in a very lucky position. In fact, everyone who receives this email is in a lucky position because we have a project that allows this in a key area, from a developer we’ve worked with 4 times before who consistently complete on time.

Short-term lets are also a good option for landlords who may wish to have their property available at a certain time in the year for personal use, as people will only rent it out for short periods at a time.

 

Short-term vs AST

AST stands for ‘Assured shorthold tenancy’. It is the most common tenancy if you rent from a private landlord or letting agent.

They can either be fixed term, which is often 6 or 12 months, or periodic, which would be a rolling weekly or monthly contract.

The overwhelming positive of a short-term let is that the landlord can earn more money over the same amount of time as a landlord who has rented their property out on an AST. For example, looking the area of Hulme just outside Manchester city centre, a landlord might charge £750 per month for a two bedroom flat on an AST.

On short-term lets through Airbnb, they can make almost double this on an occupancy of 80%.

People who may be going for a holiday or staycation in the area, potential tenants, have become more environmentally aware too, opting for the Airbnb option over a hotel. This is a more sustainable option due to the amount of energy and water needed to run an entire hotel chain, and also the benefit of being able to cook their own meals.  

 

Shortage in new build supply

The country is continuing to have the same problem: failing to supply the ever-growing demand. The UK are simply not building enough properties to keep up and this is not going to change anytime soon, and it is more obvious in certain cities such as London, Manchester, Leeds and Brighton.

The population of these cities are sharply increasing year on year, yet the number of properties being produced is not meeting the demand.

Recent fears of an oversupply of new housing in Manchester City Centre have actually prompted some developers to pause their activity and there is now a shortfall in the supply pipeline to meet anticipated demand. (JLL) The result showed in Manchester during Q3 of 2022, where the number of untenanted rental properties dropped to its lowest rate ever recorded with just 360 properties available, causing a sharp increase in rents.

This does present a great opportunity for landlords to take advantage of the rising rental prices as they are sure to have a tenant for their buy-to-let properties in the UK. 

 

What are the potential downsides and how can one overcome them?

Occupancy levels If you don’t hit high occupancy levels you may be making the same amount as if you were on a standard AST. Therefore it’s important to focus on key areas, and not just choose a short-term let anywhere. You will not have a lack of occupancy in a city like Manchester, especially from new stock in key locations. Essentially, these are the options that we focus on.

It requires more work Due to guests checking in and out, someone will need to hand them keys, change the bedding, clean the apartments. The likelihood is an investor or landlord is not going to want to do this. Finding a management company who specialises in this would be the best course of action, and we work with the biggest operator in the UK, who manage every single aspect. They have access to market leading forecast software and only take on projects in areas where demand will exceed 80% on a consistent basis. Investors get a discounted management rate if they are recommended through us.

Potential damage to flat – This is obviously a concern for many, however it can be almost entirely mitigated. Airbnb and certain operators do a few things to prevent problem guests. First of all they carry out vetting, Airbnb already has an impressive system where hosts leave reviews on guests, and hosts can decide independently whether guests who have no reviews or who have not uploaded their ID, can stay. This weeds out quite a lot of problems. This can be taken a step further with 2-night minimum stays, meaning you’re not likely to get any guests who are just visiting the city/area for one night, potentially to go out drinking. Lastly, both ‘Airbnb’ and the company we work with who manages the short-term lets have insurance in place, so if the worst were to happen, investors would be covered.

 

Our previous figures (Albion Place)

We have collated some of our previous short-term let forecasts and actual prices for one of the properties we sell, Albion Place, which is located in Manchester.

As shown above, Albion Place was a popular place for landlords to short let. Our forecasted occupancy for both one- and two-bedroom units was set at 80%, however occupancy was actually 89% for one-beds and 85% for two beds. This was in the month of September. The price per night was actually lower than expected. The forecasted prices were only slightly higher than the actual prices, as shown above with £1 and £4 differences.

The average net revenue generated in this four month period by investors was £1319 for 1-beds and £1624 for 2-bed, again highlighting the potential of short-term buy to let opportunities.

Short-let investments are clearly overperforming our forecasts, which were generous to begin with. The charts show the promise that short-term lets have, hopefully convincing investors who may worry about the amount that it would generate in comparison to an AST.

 

Our projections for The Bailey

According to a report generated from Rightmove, the prices we are selling our units at The Bailey at are actually 10-20% below market value. On top of the deals we have for investors, it presents a great opportunity for great capital growth and high rental yields. We say this because the location of The Bailey is one of the most desirable in Manchester. Being only 5 minutes from Cornbrook tram stop, 7 minutes from Old Trafford and 10 minutes from the City Centre, The Bailey is one of the best value for investment properties in Manchester.

The Bailey is walking distance to everything Manchester has to offer, so every reason someone has to visit Manchester is within a short walk. If guests prefer public transport then it gets even better due to Manchester fantastic metro link tram service.  

It is a highly desired area by tenants looking to live in the Manchester area, as it is in the M15 postcode but the prices for the units are significantly lower than most other properties in the area. It is also ideal for families as the first school in the Manchester city centre will be built in the area for children whose families live in this postcode.

 

Existing Airbnb market figures in nearby areas

On the Airbnb website, we searched for a two-bed apartment in the M15 postcode, similar to that of The Bailey and this was what we found it to cost for 1 week and 1 month stays.

These prices are also for a booking that is 2 months in advance, the price will be higher for last minute bookings. These prices can be an indicator of how much an Airbnb owner can earn per week or month. These are also after a discount, so these figures could potentially be even greater.

 

JLL forecast

JLL forecasts that there will be a 500,000 home shortfall from the 1.5m homes that need to be built over the next five years to meet demand.

According to JLL, the rental value in North-western region of England is set to increase by a sizeable amount each year until 2026. Leeds and Liverpool’s rent growth will sit at 2.6% pa, with Manchester’s slightly higher at 2.9% pa. The increases indicate the ever-growing demand among potential tenants to move to Manchester, as rising prices indicate a lack of available properties on the rental market.

Manchester particularly is set to see the highest rate of economic growth of all the major UK cities over the next five years, with a GVA growth of 16.4% according to Oxford Economics.

 

Conclusion

Ultimately, properties in the UK may look like a risk in the current economic climate, but once you assess the figures and forecasts of aspects such as house price changes, rising rental yields and dropping mortgage rates, UK property investment looks like a shrewd decision. Property has a reputation of coming through in the long-term, that is why it’s such a solid investment.

Short-term lets are one of the new and popular methods of buy-to-let, as it generates a higher income over the long run, and it is a more sustainable option for tenants. It is a positive on both sides, as there is also less commitment to adhere to an AST contract. The tax advantages for landlords are also undeniable and highlight yet another positive with the rental method.

The increasing rental prices do also mean that the return on investment will be higher and quicker, as this is projected to increase consistently year on year.

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Explore our property in Manchester

The Bailey

From £249,950

Yield: 13.5%
   In Construction
   Est. Q4 2024
   Lease Length: 250 Years

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