The property market was locked down at the end of March and re-opened on the 13th May, although most offices didn’t open until the end of June.
As such, we were missing around six weeks of ‘real’ rental data while moves had been restricted.
However, unlike the property price market, rental stats are pretty ‘immediate’ so there hasn’t been the delay in understanding what’s happening to the rental market.
Report headlines
Belvoir Lettings - In England, Wales and Scotland for all offices which have been trading consistently for over eight years, the average rent for Q2 2020 is £746 per month - a decrease of around -3.5% versus Q2 2019. When comparing Q2 2020 to the 2019 annual average of £755 per month, this also shows a small, almost insignificant fall of around -1%.
Rightmove - Record rents outside London, though landlord shift from holiday lets sees capital’s rents fall.
Hamptons International - Inner London leads rent falls, while Northern markets outperform
Savills - New priorities shape rental demand
ARLA Propertymark - Demand from tenants and rental supply highest on record for June
Hometrack - Rental growth outside London to halve to +1% by the end of the year
Download Kate's comprehensive report for the full rental market analysis
We all often refer to the ‘rental market’ as if it’s one market, just tenants and landlords. However, if there was ever a time to appreciate the huge differences in the rental market, it’s now.
Firstly the one that suffered the most was of course, short stay lets. This market pretty much collapsed and hasn’t really recovered, nor is it likely to until at least 2021 or a vaccine is found to allow travel to ‘get back to normal’ – whatever that might be!
As you will see later in the report, this is impacting on rents in the professional market, which, to date, has held up pretty well as renters have stayed in their homes or decided to move to a leafier location with a garden and office space if they can post lockdown.
And despite the issues in the student rental market, (which accounts for just under 10% of the market in England), this market too appears to have held up, especially as current reports suggest students are keen to get back to uni!
And finally, despite the accusations that landlords and letting agents ‘discriminate’ against tenants on benefits by Shelter, those in the PRS in receipt of benefits accounts for over 20% of the market.
Source: ONS
And this market has perhaps faired the best during the crisis, with the government squeeze on Local Housing Allowance ending (giving an extra £250 per month in some areas to tenants/landlords, see the Resolution Foundation article for more details), and an extra £1,000 a year. Interestingly, this didn’t though stop some on benefits asking for a rent holiday though!
In the last recession, the private rented sector increased from just over 13% of households to the current 20%, and it’s quite possible that this next recession will reverse the gains made in home ownership through initiatives such as Help to Buy, back into reverse.
No doubt ‘greedy landlords’ and ‘evil’ letting agents will be blamed, but it’s pure economics. During times of uncertainty people prefer to rent rather than buy!
Rightmove’s asking rents (rather than actually agreed) show a healthy increase year on year for rents, but this doesn’t always translate into reality as this is for new lets as opposed to those let on a continued basis year on year.
Source: Rightmove
The government’s own ONS data shows how rents react very differently to property price growth, with Northern Ireland surprisingly ‘topping’ rental increases over the last five years, with rents rising on average by 3% in Scotland through to 10% in Northern Ireland.
Despite constant media and MP accusations of rents ‘sky rocketing’ and being ‘extortionate’ the government stats show how wrong these accusations are, with rents rising at less than average inflation.
Source: ONS
The Zoopla data shows that going back to 2010, rents have risen higher than inflation in the past, but this ignores the fact that rents fell during the recession for some period of time before they started to recover, hence seeing increases slightly above inflation on some occasions during the period of time studied.
This is probably best shown by the Belvoir data which actually goes back to 2008. In their quarterly survey, we can see that average rents were fairly static up until 2013, for offices that had continued to trade during the last 12 years, giving a more true ‘like for like’ comparison.
Source: Belvoir Lettings
In summary, rents have remained pretty steady throughout the lockdown and as with house prices, since the market has opened, in the main rents have held up pretty well and for some properties and areas, especially houses, are seeing rises.
On a year on year basis, we can see from the ONS data that the maximum increase has been in the South West shortly followed by the East Midlands, with the North, London and the South East seeing the lowest increases, pretty insignificant at 1% or less.
Source: ONS
Historically, the Belvoir Index tracks back to 2008 and shows that although rents have in the main risen over time, but generally, these increases have been less than inflation.
Year on year, rents in the South, Midlands and North, in the main show they are static to seeing slight falls while East Anglia, the West Midlands and the North West are seeing rises. However, Belvoir goes one better and tracks rents by individual office and area, so its rental review is a must see if you want to find out what’s happening at a local level.
For example, individual areas covered in the last review are: Devizes, Newark on Trent, Leamington Spa, Harrogate, Tunbridge Wells, Tynedale, Chester, Stoke on Trent, Stafford and Stone and Dundee.
For more in depth rental market analysis - download Kate's comprehensive report here
Hamptons have done a cracking report recently looking at the changes in the rental market, showing what’s happened to existing rents, and indeed, those that are newly let which we’ve summarised below, basically showing that although some areas are seeing some growth, others have seen rents held back by Covid. Realistically this is likely to continue into 2021 as the economy slides into its real recession, post furlough.
Hamptons International
"In June we found that average rents on newly let properties across Great Britain fell by 0.7%, marking the first fall since February 2014. June also represented a deceleration in rental growth from the period pre-lockdown when rents were rising at an annual rate of 1.2% in February 2020.
“London was hardest hit. Year-on-year rents in the capital were down 4.5% last month, the biggest fall since our index began in 2014. Inner London, with a 7.4% year-on-year drop, was responsible for driving the fall. This was the biggest decrease on record and all but wiped out last year’s rental growth of 7.5%. Outer London rents fared slightly better, registering a -3.6% year-on-year fall.
“But it wasn’t all bad news. Outside of London rents continued to rise by an average of 1.3% year-on-year in June. Increasing rental growth in the Midlands (2.9%) and North (3.0%) outweighed rent falls in the South East (-2.2%), the North East (-0.7%) and the East of England (-0.2%). The North West recorded the strongest rental growth of 5.2% - the highest rate of growth recorded in the region since November 2016.”
Source: Hamptons International
For more in depth regional analysis - download Kate's comprehensive report here
As always, London is a completely different market to the rest of the UK, so we’ve split the commentary into two parts, UK towns and London itself. This is particularly the case in London where supply is being dramatically increased by short term lets being transferred into the long term rental market.
On an individual city/town basis, according to Hometrack:-
“Only six of the 64 towns and cities tracked by the rental index are showing rental declines in the year to June (Swindon, Coventry, Middlesbrough, Northampton, London and Aberdeen), with a further six registering growth over 4% (Rochdale, Sunderland, Bristol, Preston, York, Leicester).”
Hometrack
“Average UK rents fell by -0.3% in June, and by -0.8% in Q2, taking the annual growth in rents to +1.1%, down from +1.7% a year ago. However, a two-speed market has emerged between London and the rest of the market. Rental growth in the UK excluding London is at +2.2% as demand continues to outstrip supply in many markets. In contrast, rising supply in London and weaker demand, especially in inner London, is resulting in negative rental growth. Rental growth in Edinburgh has also slowed dramatically over the last year as a result of lower tourism and policy changes impacting landlords."
Source: Hometrack
Thanks to individual commentary from Belvoir franchise owners, you can see that when it comes to property type, houses are doing incredibly well, flats less so (on average) and for those in the HMO market, or looking to move into it, caution needs to be applied due to supply vs demand which, in the main, is keeping rents static or driving them down.
For individual commentary from Belvoir offices - download the full report here
From a London market perspective, Savills report shows that rents, in the main, are heading downwards:-
“Rents across prime London fell by an average of 2.0% in the three months to June 2020, leaving them 0.3% below where they stood a year before, in a market which had witnessed a strong start to the year.
“North and East London and prime central London saw the largest rental falls over the past quarter of 3.6% and 2.8% respectively. Despite increasing levels of demand, the major challenge has been higher levels of stock coming to the market during lockdown, from both short lets entering the market and completing new build stock.”
Source: Savills
For London market commentary from the rental indices - download the full report here
Rental demand remains buoyant versus supply according to most of the feedback. However, there are some real regional differences, especially in areas where short lets were popular. As this market has suffered so badly, many landlords are returning their properties to the long term market – not such a bad thing – and this is, for tenants, happily reducing the cost of renting, especially in higher priced areas such as London.
Source: Hamptons International
Hamptons International
“An increase in stock levels - there were 14% more homes available to rent in the capital last month (26% more in Inner London) compared with the same period last year – combined with a fall in demand (-9%), explains much of the reason behind the falls.
“Across Great Britain there were fewer applicants looking to rent in June compared with the same period last year, while the number of homes available to rent fell 10% year-on-year. As a result, there were 6.3 tenants looking for every home available to rent.
“And in the North West, the region recording the strongest rental growth last month, demand heavily outweighed supply. Stock levels in the region fell 26% year-on-year while the number of people looking to rent increased 6%. As a result, there were 12.1 applicants looking for every property available to rent, the highest ratio in the country, and up from 8.4 in June last year.”
ARLA Propertymark
“The average number of new prospective tenants registered per branch rose in June, with 79 tenants registered per branch compared to 70 in May. Year-on-year, this figure is at an all time high for the month of June. However, this is still down on pre-lockdown figures when there was an average of 82 new prospective tenants registered per branch in February.
“The number of properties managed per letting agent branch fell in June to 200, from 208 in May. However, year-on-year this is an all time high for the month of June, topping last June’s previous record of 199.
“Regionally Yorkshire & Humberside saw the highest number of properties managed, with an average of 264 per branch, and Wales had the lowest number of properties, with an average of just 104 per branch.”
Rightmove
“New rental listings dropped by an average of 50% during lockdown but are now up 1% on the same time last year. Total available stock is also up 1%. However, there are large variations at a local level, with total available stock currently up 41% in London and up 34% in Edinburgh, fuelled in-part by a surge in long-term rental supply from the curtailed holiday short-let market.
“Overall rental demand is at a record high and so this may lead to further upwards price pressure except in areas of over-supply. Compared to this time last year demand is now 40% higher across Great Britain.”
Savills
“Lockdown has affected the needs and wants of tenants, with interest increasing not only for more space, but also specific locations and property attributes.
“With many people working from home during the lockdown period, a desire for more inside space has increased. Across prime London and the commuter zone, 79% of Savills agents reported an increase in demand for properties with a separate space to work from home. Similarly, a strong WiFi or internet connection is now higher on tenants’ requirements, particularly in markets outside of London.
“Larger properties have also seen an increase in demand in the outer commuter belt. Those with five or more bedrooms have outperformed over the past three months, with quarterly growth of 1.2% as opposed to only 0.6% growth for one- or two-bedroom properties. This is a reverse of the trend we have seen over the past five years on the back of increased demand for prime family housing.
“Good schools have therefore become more of a driver of local demand in the commuter belt: 43% of agents have seen an increase in demand for property serviced by good educational facilities, as more families look to move out to the commuter zone and take advantage of the value and space on offer.
“But it’s not only demand for inside space that has increased; 96% of agents reported an increase in demand for property with a garden or other outside space. In prime London particularly, properties with a private garden have been more robust over the past three months, in some cases attracting premiums. Properties closer to local parks have also seen an increase in demand, according to our London agents.
“As tenants reassess their requirements following lockdown, the ability to walk or cycle to work is now also higher on their list of requirements. Two-thirds of our London agents are seeing an increase in demand for property where this is possible, particularly in South West and West London.”
RICS
“Respondents noted a firm recovery in tenant demand over the three months to July (seasonally adjusted quarterly time series). With regards to new landlord instructions respondents reported a pick-up over the survey period. Although only marginally positive, this is the first occasion since 2016 in which the flow of landlord instructions has reportedly improved.”
Hometrack
“Rental demand bounced back strongly during lockdown, due to the flexibility and relative speed with which households could move into vacant rental accommodation. This demand has now moderated, but is still running 33% higher than pre lockdown, and some 25% above 2019 levels. Renters, like homeowners, may have used lockdown as a chance to reassess how and where they are living, prompting a further boost to activity in the market. At the same time, some renters may have relocated to live with family or friends to save on rental costs – bringing more homes back to the market. The number of homes for rent has increased, slightly ahead of usual seasonal trends, with homes for rent 7% higher than this time last year at a national level.
“As the gap between demand and supply continues to narrow through Q3 and Q4, rental growth will start to slow as tenants have a wider array of rental properties to choose from. City level trends are more stark when comparing rental demand and available supply in July 2020 compared to the average level over the last 3 years.
“In Cardiff and Newcastle, where the gap is among the largest, annual rental growth is at 3% and 3.4% respectively. In contrast the supply/ demand balance is leading to weaker rental growth in cities such as Edinburgh and London.”
Download Kate Faulkner's full rental report here
Overall, the rental market is likely to have a positive time over the next year or two while Covid continues to batter the economy. It’s unlikely we’ll see much of a rise in rent unless the property is a house with decent outside space.
However, the main trick to a successful rental market is avoiding voids and at least maintaining rental income.
Despite fears being stoked by tenant organisations over rental evictions, Wales and Scotland are both protected thanks to six month evictions, but also thanks to the loan packages they have put in place for landlords and tenants.
England would be pretty foolish not to follow suit – and you have to ask where the government is planning to house the millions of people expected to be hit by unemployment post the end of the furlough scheme if not in the homes they currently own or rent.
The failure to build social homes and rely instead on the PRS is really going to come home to roost in the next 12 months as there will either be a huge increase in homelessness or a realisation that the PRS is a much needed sector in the UK unless government is going to build at least a million social homes, quickly!
For more detailed information, download the full rental report here
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