Low yields see DJ Alexander open the door to single-night tenants

HISTORIC low yields on investment properties have led one of Scotland's largest independent letting agencies to start offering accommodation for as little as one night.

DJ Alexander has announced that after almost 25 years of offering only leases of six months, from the end of this year it will offer 200 properties in Scotland's two main cities on short-term leases.

The company has more than 3,000 properties under management in Edinburgh and Glasgow for long-term tenants. The new "exclusive urban properties" will be offered purely to short-term occupiers. The move has been forced on the company as demand or the short stays increase and returns on properties fall relative to purchase price.

Owner David Alexander said that over the past decade the increase in capital value on property had far outstripped rental increases, slashing yield rates to the lowest he had seen in his career, discouraging new investment.

"Fifteen years ago I could have returned 12-15 per cent on an investment, but now as capital values have risen and rent is static, it's down to 3 per cent, so if you're borrowing money at 6 per cent, it really doesn't make sense," he said. "If you've been in the market for ten years you're still getting a decent return; this is purely for people entering the market now that we're looking for new alternatives."

DJ Alexander has been awarded sole letting agent rights from Heritors, a new investment fund that has bought 200 urban properties, split evenly between Edinburgh and Glasgow; the portfolio is said to be worth about 100 million. Some of the portfolio, in Stockbridge in Edinburgh and Botanic Gardens in Glasgow, will be offered from the end of this year.

Beside the new portfolio the company will also offer the service to landlords with entire blocks of flats to let, where these are of premium quality in desirable locations.

Alexander could not say how much of the company portfolio he estimated could become short-term, but said demand was "huge".

He believed demand would be greater in Edinburgh but considerable business had also been turned away from Glasgow. As well as short-term business trips and weekend holidays, the company expects to gain business from people coming to Edinburgh to settle but needing accommodation for several weeks while they find a permanent home. After monitoring the number of people requesting short-term stays, the company believes it could achieve at least 50 per cent occupancy for the flats, at which rate the yield could be double the 3 per cent average for newly bought accommodation.

The company said it would remain focused on the long-term tenants, but the short-term market was now so significant it could not be ignored.