Yield is the first number any investor asks about a property, and it's one of the most misunderstood figures in the industry. Landlords use it to judge whether a buy-to-let stacks up. Valuers use it to price commercial buildings. Developers use it to work backwards from an exit value to a land price.
This guide walks through the formulas, with worked examples, explains what counts as a "good" yield, and then covers the part most yield guides skip entirely: how yield actually shapes development value, and why it belongs in every appraisal you run.
At its simplest, property yield is the annual rental income a property generates, expressed as a percentage of its price or value. If a property costs £250,000 and brings in £15,000 a year in rent, its yield is 6%.
That's the headline figure, but there are two versions of it, and mixing them up leads to some fairly optimistic-looking spreadsheets.
Gross yield uses rental income before any costs are deducted. It's quick to calculate and useful for a first pass, but it flatters the numbers because it ignores everything you actually spend to keep a property tenanted.
Net yield deducts running costs first, including maintenance, management fees, insurance and void periods, before doing the percentage calculation. It's more work, but it tells you what you're actually likely to pocket.
Yield is also only one lens on performance. It doesn't capture capital growth, and it says nothing about total return over the life of an investment. A property with a modest yield but strong capital appreciation might outperform a high-yielding property in a stagnant area over a ten-year hold. Yield is a useful, fast diagnostic - not the whole picture, and not a number to build an entire investment decision around.
Here's the maths, step by step, with worked examples for each version.
Formula: (Annual rental income ÷ Purchase price) × 100
Worked example:
1. Property purchase price: £300,000
2. Monthly rent: £1,500, so annual rent is £18,000
Formula: ((Annual rental income − Annual running costs) ÷ Purchase price) × 100
Worked example:
Notice the gap between the two figures. That 1.4 percentage point difference is the reality check that gross yield alone doesn't give you.
The same formula applies, but you'll usually be working from a monthly rent figure and need to annualise it first.
If you bought a property years ago and it's since risen in value, using the original purchase price will overstate your yield. Current value gives you the true picture of how hard your capital is working today.
This is the question everyone asks, and the honest answer is: it depends on where you're looking and what you're comparing against.
Gross yields across the UK vary considerably by region and property type. Areas with lower capital values, such as parts of the North of England and Scotland, tend to produce higher headline yields than London and the South East, where high purchase prices drag the percentage down even when rents are strong. Because these figures shift with the market, it's worth checking a live source, such as Savills' research or the ONS private rental data, rather than relying on numbers that were accurate last year but aren't now.
Regional averages aside, the bigger mistake is chasing the highest headline yield without asking why it's high. A yield that looks excellent on paper can hide a property that's difficult to let, needs constant repair, or sits in an area with a shrinking tenant pool. Void periods, condition and tenant quality all eat into the number that actually lands in your account, which is exactly why net yield, not gross, is the figure worth trusting when you're making a real decision.
In residential buy-to-let, yield tells you about return. In commercial property, it does something else entirely: it sets the value.
The relationship is: Value = Income ÷ Yield
If a commercial building produces £100,000 a year in rent and the market yield for that asset type and location is 5%, the building is worth £2 million. Drop the yield to 4%, and the same income stream is suddenly worth £2.5 million. Nothing about the building has changed - only what investors are prepared to pay for that income has moved.
This is why yield compression (yields falling) pushes commercial values up, and why yield expansion (yields rising, often alongside interest rates) pushes them down, even with rental income held constant.
Prime yields apply to the best assets in the best locations - think a fully let, modern logistics unit next to a motorway junction, or a grade-A office in a strong city centre. Secondary yields apply to weaker locations, older stock or shorter leases, and sit higher than prime because investors demand a bigger return for the extra risk.
Yields move on interest rates, occupier demand, lease length, covenant strength and broader investor sentiment. Understanding which way they're moving, and why, is central to pricing any commercial acquisition or disposal correctly.
This is where yield stops being a landlord's number and starts being a developer's number, and it's the part most guides on this topic never touch.
When you're appraising a commercial, build-to-rent or mixed-use scheme, you don't yet have a rent roll to divide by an actual price, because the building doesn't exist. Instead, you forecast the income the completed scheme will generate, apply an assumed exit yield, and back into your gross development value. Shift that assumed yield by even half a percentage point, and your GDV, and therefore your entire scheme's viability, moves with it.
This compares the income a scheme will generate against its total development cost, rather than against its eventual sale value. The gap between your yield on cost and the market's exit yield is, broadly, where your development profit lives. If you can build to a yield on cost that comfortably beats the exit yield the market is currently paying, you've got margin. If the two numbers are close, you've got a scheme that's vulnerable to any market movement between now and completion.
Every appraisal works backwards from GDV, through build costs, finance and profit, to arrive at what's left over for the land. Because the exit yield sets the GDV, an overly optimistic yield assumption inflates the residual land value, and can lead to a site being bought for more than the numbers actually support. This is exactly the kind of single-figure obsession worth guarding against; yield is one assumption among several, but it's one of the most consequential.
Getting comfortable flexing these assumptions, rather than locking in a single yield and hoping, is what separates a robust appraisal from an optimistic one. LandTech's appraisal tools let you stress-test yield and value assumptions across different scenarios, so you can see exactly how sensitive a scheme is before you commit to a land price.
What is the difference between gross and net yield?
Gross yield divides annual rent by purchase price. Net yield subtracts running costs, such as maintenance, management fees, insurance and voids, from rent before doing the same calculation, giving a more realistic return figure.
How do I work out rental yield on a property I already own?
Annualise your monthly rent, then divide by the property's current market value rather than what you originally paid, to get an up-to-date yield figure.
What is a good yield in the UK?
It varies by region and asset type, with lower-value areas typically producing higher headline yields than London and the South East. Check a live source for current figures, and weigh the headline number against void risk, condition and tenant demand.
What is yield on cost in development?
It's a development-side metric comparing a scheme's forecast income against its total development cost, rather than its eventual sale value. The gap between yield on cost and the market's exit yield is broadly where development profit sits.
How does yield affect property value?
In commercial property, value equals income divided by yield, so a falling yield pushes value up and a rising yield pushes value down, even if rental income stays exactly the same.
The developers who win are the ones who can run the numbers both ways: reading yield as a landlord would, and understanding how the same figure sets GDV, shapes viability and ultimately decides what a site is worth. Appraise your next scheme with LandTech, and see exactly how your yield assumptions play out before you commit.
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