City centre apartments are marketed heavily to property investors. Glossy brochures, promised yields, concierge desks and skyline views. They look like the easiest way into property investment.
But when you strip away the marketing and run the real numbers, many city centre apartments deliver a disappointing net yield. In this guide we explain why, and what experienced investors often choose instead.
The headline yield is rarely the real yield
Developments are usually sold on a gross yield: the annual rent divided by the purchase price. A £250,000 apartment renting for £1,250 per month shows a 6% gross yield, which looks respectable.
The problem is that gross yield ignores the costs of owning the property. For city centre apartments, those costs are often substantial.
The costs that eat into apartment returns
Service charges
Most apartment blocks charge an annual service charge covering the building's upkeep, lifts, communal areas, insurance and management. In city centre developments, service charges commonly run from £2,000 to £4,000 per year, and sometimes considerably more in buildings with gyms, concierges and pools.
That cost comes straight off your rental income, every year, whether the flat is let or not.
Ground rent
Leasehold apartments usually carry ground rent payable to the freeholder. While reforms have changed ground rent on new leases, many existing apartments still carry ground rents that can increase over time.
Letting and management fees
If you use a letting agent, full management typically costs 10% to 15% of the rent plus VAT. City centre apartments also tend to attract shorter tenancies, which means more frequent re-letting fees.
Void periods and tenant turnover
City centre apartment tenants are often young professionals who stay for a year or two. Higher turnover means more void periods, more re-letting costs and more wear between tenancies.
Leasehold costs and restrictions
Consent fees, parking charges, cladding-related costs on some buildings and restrictions on how you can let the property all add friction that houses simply do not have.
A worked example: gross versus net
Take that £250,000 city centre apartment renting at £1,250 per month:
- Annual rent: £15,000
- Service charge: £2,500
- Ground rent: £300
- Management at 12% plus VAT: roughly £2,160
- Allowance for voids and maintenance: £1,000
Net income before mortgage costs: around £9,040, a net yield of roughly 3.6% on the purchase price.
The advertised 6% has nearly halved once real ownership costs are included.
Other issues with city centre apartments
Oversupply
Many city centres have seen waves of apartment development. When hundreds of similar flats compete for the same tenants, rents soften and voids lengthen. Oversupply also limits capital growth, because there is always another similar flat for sale.
Limited capital growth
Apartments have historically grown in value more slowly than houses in the same cities. Buyers of houses are purchasing land as well as a building, and land is what tends to appreciate. A flat is a share of a building with no land ownership.
Leasehold erosion
A lease is a wasting asset. As the lease shortens, the property can become harder to sell and harder to mortgage, and extending the lease costs money.
Cladding and building safety
Since the building safety crisis, many apartment blocks have faced remediation costs, higher insurance and difficulties with mortgage lending. Even where issues are resolved, some lenders remain cautious about certain buildings.
What do experienced investors buy instead?
Many investors focused on income look instead at:
- Terraced houses in strong regional cities, where service charges and ground rent do not exist, tenants stay longer and yields of 6% to 8% net are achievable.
- HMOs, where renting rooms individually can significantly increase income.
- Below market value purchases, where buying well improves the yield from day one.
None of these are risk free, but the cost structure is far more favourable than a leasehold city centre flat.
Are city centre apartments ever a good investment?
Some are. A well-priced apartment in a genuinely undersupplied location, with a sensible service charge and a long lease, can still work. The point is not that every apartment is a bad investment. It is that the headline yield on the brochure is not the yield you will actually receive, and the only way to know the difference is to run the net numbers yourself.
How Vantis Property Group approaches this
At Vantis Property Group, we focus on opportunities where the numbers genuinely work: terraced houses, HMOs, below market value purchases and portfolios in strong Northern markets. We look at net returns, not brochure yields, because that is what actually reaches your pocket.
Want to see deals where the numbers stack up? Join our private deal group for access to the latest opportunities we source.
Frequently Asked Questions
What is a good net yield for a rental property?
It depends on the area and strategy, but many investors target 5% to 8% net in strong regional markets. The important thing is to calculate net yield after all ownership costs, not rely on the gross figure.
Are service charges negotiable?
Not usually. Service charges are set by the building's management and can increase over time. Always check the current charge, recent increases and any planned major works before buying.
Do city centre apartments ever go up in value?
Some do, but apartments have historically appreciated more slowly than houses, and oversupplied city centres can see values stagnate for years.
Is a house always a better investment than a flat?
Not always, but houses avoid service charges and ground rent, attract longer tenancies in many areas, and include land ownership, which tends to support long term growth.
What should I check before buying an apartment?
The service charge history, ground rent terms, lease length, any cladding or building safety issues, the level of competing supply nearby, and a realistic net yield calculation.
This article is for general information only and does not constitute financial, mortgage, tax, legal or investment advice. Property values and rental income can rise or fall. You should obtain appropriate professional advice before making an investment decision.