Their latest research provides insights into the annual change in rental growth across the UK, regional and city-level market insight data and their predicted outlook for the rental market in the coming months.
Average UK rents outside London rose by 0.7% in the three months to September, taking the annual growth rate to 1.7%. Rental growth remains in positive territory across most regions and cities in the UK. This is in sharp contrast to London, where rents fell by -3.2% in Q3, taking the annual decline to -5.2% at the end of December.
This two-speed market is likely to be entrenched during the additional lockdowns in England and across the regions, which will exacerbate the trends which is causing the split in rental performance, especially as more people work from home.
Demand and Supply
Rental growth is being underpinned in many areas by the continued imbalance between tenant demand and the supply of rental properties, with rents rising in most cities across the UK. Renter demand has moderated from the highs seen in early summer after the first lockdown ended, but year on year, demand is still around 20% higher than in the same period in 2019.
The challenges in the mortgage market for first-time buyers trying to obtain a home loan, given the current squeeze on lending for those with smaller deposits, means that many of these aspiring homeowners will be staying in the rental market for longer, underpinning demand. This comes as overall supply into the rental market from individual landlords has been constrained. The return of students to University as usual in the Autumn will also have boosted demand in the rental sector.
Rental growth is being underpinned where demand is outstripping supply. In the West Midlands, rents in Birmingham, the largest rental market in the region, narrowly dipped into negative territory in September. The city may be starting to feel the impact of changing working patterns, with demand in some city centres being affected by limited office attendance, as well as new-build supply coming into the market creating more choice. In the North West, rents have increase by 1.8% although rents in Manchester dipped slightly by -0.1%.
There is also increasing sensitivity about rental levels in some regional and city markets due to muted earnings growth. Average pay in the private sector fell in real terms in April, according to the latest official data, and this pressure on wages is likely to have continued through the summer. These factors could cause a gradual slowing in rental growth in the months to come, but the UK market outside the capital will still outperform London.
The rental declines in the capital reflect the changing picture on working and commuting patterns and tourism. At the start of lockdown, there was a shift from short-lets to long-lets, especially in the centre of the city, pushing up supply in the sector which is still being absorbed.
The market is highly localised however, with the balance between supply and demand a key factor determining the movement in rents. The central London rental market is being affected by the changes in working trends, with rental property typically used by workers staying in town for part of the week coming back to the market as many continue to work from elsewhere. The muted tourism during Summer and Autumn mean that any short-let landlords who had not switched into a long-let option may be choosing to do this now.
Demand remains stronger for rental property in outer London boroughs however, stretching supply and underpinning rental growth. The housing stock available in mid and outer London zones, with more houses and outside space, also fits with the search for space being seen across the rental market as a whole. The data suggests that landlords in the rented housing market are making fewer cuts to asking price, highlighting demand in this sector. This also underlines the fact that headline rents in London are covering markets which are becoming more distinct, namely rented single-family houses, single-family flats and houses of multiple occupation.
There has been an uptick in activity in some more suburban or urban rental markets, reflecting a cohort of renters who are choosing to make a change to how and where they live. However, the data shows that most Londoners are looking for rental property within the capital, so the idea of a large-scale move from London is probably an overstatement. The proportion of Londoners looking to stay in the city has risen compared to last year.
Search for Space across the country
Just as in the sales market, the data indicates that renters across the UK are also reassessing the property in which they live. In some markets, rented houses are now being snapped up more quickly than flats, indicating the additional space, often with a garden, is increasingly attractive for renters. The average time taken to rent a house is now 16 days, down from 20 days last year. The time between listing a flat and let agreed is 18 days, also down from 20 days last year.
The most popular search terms for rental property also reflect the emphasis on space for renters, with Gardens, Parking, Garage and Balcony, topping the list. The fifth most popular search term is pets, with renters looking for pet-friendly accommodation.
Outlook for rents
The two-speed market across the UK is likely to remain in the coming months, as the lockdowns across the regions entrench some of the trends around working and commuting patterns seen during the previous lockdown and over the summer.
However, moving into next year, more large urban centres could see supply start to catch up with demand, especially in the city centres, which could put downward pressure on rental growth. There will also be more turnover in some parts of the market once the eviction bans are repealed into next year. Earnings growth, which is set to be subdued this year, is forecast to pick up again in 2021, however. This could allow more headroom for rental growth in some areas, especially if there is a return to more frequent office working.
Original content taken from Zoopla’s Market Rent Report, November 2020.
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