Rents outside London at Four Year High Due to Constrained Supply

Rents Outside London Increase 3% Year-on-Year Due to Constrained Supply

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UK rental growth outside London at a four year high as there is strong rental demand due to constrained supply, with rents increasing +1% in the three months to the end of March and +3% year-on-year. Three regions in England and Wales are recording the highest rental growth since March 2011.

The UK rental market has three distinct markets emerging:

1. Wider Commuter Zones and beyond
2. Major City Centres
3. London

High levels of demand alongside constrained supply will underpin rental growth across the UK in 2021.

As businesses and offices start to reopen along with surrounding amenities, rental demand is building in large city centre markets, causing upward pressure on rents.

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London Rental Market

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London rents are down by -9.4% in the year to March, a slight decrease in the year to February therefore, rental decreases are easing, however, it will take the market some time to recover.

London rents are at their most affordable level since 2011 in boroughs including City of London, Kensington & Chelsea and Westminster, increasing the rental demand for inner London by 6.5% since Easter in comparison to the previous 6-weeks. Average monthly rents account for 42% of a single earner’s average gross income, compared to 49% last year.

As global travel opens up, properties previously used for holiday lets and serviced accommodation will return to their original use, constraining the supply for rental properties on Assured Shorthold Tenancies (AST’s).

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Rental Supply & Demand Imbalance

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Rental demand was 32% higher than in Q1 2020 and 59% higher than the average April market (2017 to 2019).

Renters are looking for larger properties as more people are now working from home, a trend set to continue with flexible working. Renters are also reassessing where they live, with many choosing to move as opposed to extending their lease, creating additional demand. Many are looking for properties with access to outside space as we are all spending more time at home.

The typical flow of renters out of the sector, making the move to buy their own property has decreased as they are reluctant to make large financial commitments during a global pandemic.

Supply of rental properties is not keeping up with demand, with a 5% decrease in available properties in Q1 2021 compared to Q1 2020. Institutional investors are adding to their property portfolios to capitalise from the supply constraints, however, the structural supply constraints are still not being met, providing an opportunity for individual buy-to-let investors.

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Demand for City Centre Rental Property

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Since the 5th April, tenant demand has risen sharply in cities such as Manchester, which experience a 5% increase in demand.

Affordability has also improved, with Manchester rents now 28% of an average earner’s income, compared to 30% in March 2019.

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2021 Rental Market Outlook

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High levels of demand for the UK market and constraints on supply will ensure rental growth throughout 2021.

As there is still economic uncertainty, many renters exiting the rental sector by purchasing their own home will create additional demand, despite mortgages now being available with lower deposits.

Demand will build in the city centres as UK businesses re-open their doors. With the return of foreign travel, rental properties in cities will be removed from the market as they are used for serviced accommodation. Affordability of city centre rental properties will be very attractive, enticing renters to the vibrancy of city living.

Many first time renters will have delayed their move due to the pandemic; therefore, there is thought to be a surge in new renters in the summer with this pent up demand.

Rental properties with access to outside space will continue to do well as well as new or recently refurbished properties, expected to attract higher levels of demand in H2 2021.

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