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Last year brought significant returns of 11.3% for the private rented sector, according to a new index launched by Knight Frank.

The index tracks the performance of rental blocks across the UK.

According to Knight Frank, institutions and private individuals are becoming bigger players in the private rented sector, and these blocks represent some of the typical stock they invest in and trade.

The index tracks rental performance in six cities: London (Zone 1, Zones 2-3, Zones 3-6), Bristol, Birmingham, Leeds, Manchester, and Glasgow. Within these cities markets, it follows rental and capital growth, as well as discounts, of buildings ranging from "economic", at the lower end of the rental scale, to "prime", for buildings with the highest specification in the best locations – which usually also have the highest rental value.

Knight Frank has also launched a wider report called “The Rental Revolution” which considers trends in the private rented sector.

It reveals:

* A sixth of the UK population currently lives in privately rented housing. The number of households in the sector is forecast to rise from 3.9 million in 2010 to 5.3 million by the end of 2018;

* Tenant demand will continue to grow, especially in key urban centres;

On specific performance:

* In 2013, the average rental growth in the city markets analysed by Knight Frank was 2.9% in 2013, ranging from 0.4% in London Zone 1 to 5.3% in Manchester;

* Leeds and Manchester had the highest average initial gross yields in Q4 2013, at 8.2%;

* The average yield across all six city markets was 6.6%. The average discount fell from around 20% to 10%, reflecting increased activity in the regions

Gráinne Gilmore, head of UK Residential Research and the report’s author, said: “The rental revolution is here. The dynamics in the housing market in the UK mean that the private rented sector is set to continue growing in the years to come, boosted not only by the difficulties many face in climbing onto the housing ladder, but also the need for flexible tenure among workers who are increasingly concentrated in the key cities around the UK. Investors keen to tap into the market are starting to move their  attention beyond London to the regions, where, as our index shows, yields are higher.”

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