Unlocking Higher Returns: Regional Residential Real Estate Investment Beyond London and the South East

For decades, London and the South East have dominated the narrative around UK property investment. International demand, strong capital appreciation and global prestige have made the capital and its surrounding commuter belt a focal point for investors. However, we are seeing investors increasingly turning their attention to regional residential markets across the UK - where lower entry prices and stronger rental dynamics have delivered consistently high returns on investment in recent years.

Geopolitical instability has led to a more turbulent macroeconomic environment in recent years. As a result, with “all-in” finance costs often fluctuating between 5%-7%, investors are increasingly requiring gross yields of 9-10%+ in order to satisfy their returns criteria. Whilst these gross yields might not be achievable in the “Northern Powerhouse” cities of Manchester and Leeds and the major Scottish cities of Glasgow and Edinburgh, the aggressive rental growth of the last five years has seen these returns become achievable in locations such as Sheffield, Newcastle and Liverpool, in addition to the majority of ‘secondary’ towns and cities in the Midlands and the North.

Ultimately, regional markets are underpinned by the fact that approximately 70% of the UK population lives outside of London and the South East. That is an enormous amount of housing required, and against the backdrop of a well-publicised national housing shortage, with a relatively low delivery of new homes forecast in the coming years, this pent up demand for both rental and owner-occupier stock has underpinned consistent performance in this sector.

"Ultimately, regional markets are underpinned by the fact that approximately 70% of the UK population lives outside of London and the South East"

Why Regional Markets Deliver Higher Returns

Lower Property Prices, Comparable Rental Demand

The primary driver of higher yields in the regions is the relationship between purchase price and rental income. London benefits from a limited supply, underpinning long-term capital growth expectations. While rents are high in absolute terms, they do not rise proportionally with property prices. This has resulted in a pattern of suppressed yields.

By contrast, regional cities such as Manchester, Birmingham, Leeds and Sheffield offer significantly lower entry prices, while maintaining strong rental demand from students, young professionals and local workforces. Rents over the past five years have increased by a cumulative 30%+ in some regional locations.

As a result, rental growth has been outpacing capital growth in recent years. In many regional markets, rents have risen sharply due to supply shortages, while property prices have only increased moderately. This has helped sustain and even improve rental yields.

Strong and Diverse Tenant Demand

Regional cities are no longer secondary markets - they are economic hubs in their own right. Cities such as Manchester, Leeds and Birmingham have experienced significant population growth, major infrastructure investment and regeneration projects and growth in professional services and tech sectors. The UK government together with other major employers in both the public and private sectors have diversified outside of London, opening landmark offices across major regional cities taking advantage of increasingly footloose working habits.

Owner occupier affordability is still a challenge for younger generations, with the average age of first-time buyers now at 34 years old. The proportion of young professionals remaining in the rental market for over a decade is ever increasing.

These factors have worked to create deep and resilient rental markets. High tenant demand and strong local demographics - particularly in areas near universities and employment centres - supports both occupancy rates and rental growth.

Portfolio Diversification

Investing outside London allows for greater diversification. Instead of allocating capital to a single high-value asset, or a limited number of assets, in London, some investors have capitalised on the opportunity to acquire multiple properties across different regional markets. Provided the correct management platforms are in place, this spreads geographic risk, provides multiple income streams and can enhance overall portfolio yield. Income-focused investors can reap the rewards of sophisticated diversification models.

The Trade-Off: Yield vs Capital Growth

While regional markets offer stronger income returns, it is important to acknowledge the trade-off.

London has historically delivered strong long-term capital appreciation, high liquidity and both domestic and international investor demand. Regional markets, on the other hand, are typically more income-focused and have historically experienced slower capital growth (though this pattern is changing in the majority of major regional cities).

However, as affordability constraints intensify in the South, capital growth in London has moderated and the argument for exploring investment opportunities in the Midlands and the North has only strengthened as these regions have experienced faster relative price growth.

Market Outlook

Recent data suggests that rental markets outside London are stabilising after a period of rapid growth, with affordability constraints beginning to cap rent increases. However, the structural drivers underpinning regional investment - lower entry prices, strong demand and favourable yield dynamics - remain intact. As such, Allsop has experienced an increased pattern of investors targeting assets and portfolios that offer yields of circa 10% with the break-up values of individual units averaging sub-£100k. This dual approach is underpinning the investment strategies of a relatively significant portion of the investor market with a contingency clearly built into this approach.

Whilst the regulatory changes introduced by the Renters’ Rights Act are inevitably going to have an impact on landlords in terms of potential tenant turnover and the ability to increase rents efficiently, the fundamentals remain the same and we anticipate that UK residential property will remain an extremely popular and highly performing asset class.

The UK residential investment landscape is undergoing a clear rebalancing. While London remains a global property powerhouse, it is no longer the default choice for investors seeking strong returns. Regional markets present the opportunity to realise higher rental yields, lower capital requirements and a strong and ever-growing tenant demand. For investors prioritising income and portfolio diversification, these areas present compelling opportunities. In today’s market, the question is no longer whether to invest outside London - but how to do so effectively.