Rent returns rising in key cities - Knight Frank

Average gross yields in six key cities - Leeds, Bristol, Birmingham, Glasgow, Manchester and London - have risen 6.4 per cent in the year to July according to Knight Frank.

Gross yields range from 4.3 per cent in central London to 8.2 per cent in Leeds in the year to the end of Q2 2014. Average rental growth was 2.6 growth in year to end of June 2014, while average capital growth was 7.3 per cent.

Knight Frank's private rented sector index, encompassing key city markets across the UK, shows that initial yields have fallen slightly but capital growth has stepped up, resulting in higher total returns.

The agency says the pace of capital growth for investment-grade rented blocks has spiked to 7.3 per cent in the year to the end of Q2 2014, up from 6.4 per cent in the calendar year of 2013.

Knight Frank's index is comprised of rental data collected from large rental single-block properties classed as prime, median and economic.

The classification of these blocks takes into account location, monthly rents and also the type of unit on offer - a prime block will have units in the most desirable areas. In contrast, economic blocks' are the least expensive for tenants, but their capital value is also lower, indicating higher initial yields for investors.