Why landlords should think about £/sqft
If you’ve read Stieg Larsson's “The Girl with the Dragon Tattoo” trilogy, you may have been struck by the Swedish author's habit of mentioning the size (in square metres) of every property that features in the crime novels' fast-paced plot.
Property buyers in mainland Europe and the USA have long been accustomed to thinking and talking about properties' internal area (square feet or square metres), but in the UK we're still stuck talking about the number of bedrooms as a property's main attribute. The problem with this approach is that a large bedroom can be split into two, or a reception room converted to a bedroom, without necessarily adding value to a property and perhaps even reducing the property if done unwisely.
Properties can be reconfigured and walls can be moved, so I've always believed that talking about a property's internal area is a simple but powerful way of comparing property values.
Measuring internal area
Although there's no universally accepted standard for measuring a property, the basic rule is to include all internal residential areas.
This means reception rooms, kitchens, bathrooms, and bedrooms, as well as private hallways and landings. Areas with ceiling height of under 1.5m should be excluded, and unheated garages, outbuildings or any other outside area shouldn't be included either (but their measurements are sometimes listed separately).
Don't whip out your trusty tape measure just yet – on PropertyData we have a database of the internal area of 15 million properties, so you can quickly and easily look up the square footage of most properties in England & Wales. If you're buying a property, the measurements might be advertised by the selling agent, although be aware that these can overstate the true figure by as much as 10% thanks to “optimistic” measuring practices.
Calculating £/sqft – and what factors affect it.
Once you’ve found your internal area, simply take the asking or sold price of a property and divide it by the internal area. So a 1,000 square foot house that sold for £200,000 had a value of £200/sqft. A variety of factors drive the wide variety of £/sqft values. As always, location is the most important factor – in the last year, an average square foot in Kensington sold for £1,450, while a typical square foot in South Preston fetched just £150. Next up is the quality of the internal area of the property. A good layout or flow, high quality internal finishes in kitchens and bathrooms, good natural light, and a well-kept condition will all contribute to a property’s higher £/sqft in comparison to the local average.
Size matters too. In most areas in the UK, £/sqft decreases as the property size increases. However, in 'prime' areas this relationship reverses, with £/sqft increasing as the property size grows.
Investing using £/sqft
PropertyData's Local Data tool is a simple and quick way to work out £/sqft (based on asking or sold prices) in any local area.
If you’re looking for an opportunity to add value by refurbishing and improving the property, you may search for a property with a low £/sqft asking price for the local area, perhaps because it is unmodernised, in poor condition, or has been poorly marketed.
Increasing the internal area of a property by extending it is also one of the most important ways for investors to add value. In many UK areas, property values exceed construction costs on a per square foot basis, so by adding square footage you can realise a profit, even without increasing the £/sqft between purchase and resale.
Our comprehensive build cost data and development calculator can help you assess the profitability of a possible project. Knowing whether £/sqft increases or decreases for larger properties will also inform you whether a strategy of merging or splitting properties would be profitable for a given area.
Looking at local area £/sqft comparables is a critical part of any valuation process.
PropertyData's Quick Comparables tool shows you recent transactions in any area in England & Wales similar to your target property. It's best to compare properties of a roughly similar size – comparing an 800 square foot flat against a 3,000 square foot house is unlikely to be a sensible comparison.
Our Sourcing algorithms automatically identify properties that are good value for money on a £/sqft basis compared with the local average.
In summary
Stieg Larsson was onto something – a property’s internal area should be nearly the first thing we mention when describing a property, before we get to the number of bedrooms or anything else. It's time we join other countries in thinking more about £/sqft when investing in residential property.
Thinking this way will help us make better choices and spot more opportunities to add value.
Michael Dent is the founder of PropertyData, a website that helps landlords to use data and analytics to make better decisions when investing in residential property. Monthly subscriptions start at £14/month
