The latest rental index from Zoopla has offered insight into the UK rental market as the UK economy plunges into a recession.
The report suggests that a two-speed rental market is emerging with a supply/demand imbalance supporting rental growth in many major UK cities while greater supply in London is resulting in a downward pressure on rents.
Rental growth in the capital has turned negative with average rents 1.4% lower year on year. This is down to an increase in supply of rental properties and a decrease in demand as firms cut jobs and a decrease in travel and tourism meaning short-term landlords moved into the long-term letting market.
Office workers who pre-Covid may have chosen to stay overnight in the capital multiple times a week and students and young people choosing to return to family homes to save money are thought to have played a major role in the decrease in demand.
Residential rents outside of the capital however are growing thanks to a slight increase in demand, taking the average growth rate to 1.1%.
Bristol, Cardiff, Leeds and Liverpool have all seen a considerable increase in rents with Bristol reporting a 4.6% rise.
Whilst the rental growth outlook is seemingly positive in major cities outside of the capital, Zoopla reports a prediction that this rate will slow to +1% by the end of the year. Meanwhile average rents in London could decline by as much as 5% this year, largely thanks to the inner London market where demand is expected to stay relatively low.
Nationally the number of homes available to rent has risen by 7%, likely due to tenants using the lockdown period to reassess their living situation and spotting a much-needed opportunity to save on rent fees. Post-lockdown rental demand bounced back, thanks in part to renters’ ability to move quickly into available accommodation, a luxury that many homeowners don’t have.
It’s not just London that is seeing a decrease in rental demand, with Edinburgh reporting a similar situation. A city that relies heavily on international tourism, Edinburgh has also been impacted by changes in legislation that limits the type of accommodation that can be used as short-term lets in the Scottish capital. Zoopla reports that this change is likely to have seen many properties move over to longer lets, increasing rental supply that isn’t met by demand.
Rental growth in Edinburgh has dropped dramatically over the last 12 months from 4% in June 2019 to just 0.2% in June 2020.
The current imbalances between supply and demand are expected to continue through the year with major periods such as September when normally an influx of new students to UK cities would see a rise in demand likely to report year on year losses.
Alongside this however there are positive predictions that city centres slowly starting to re-open and the reduced availability of 10% mortgages both likely to result in more people looking for rented accommodation through the autumn and winter.