Current rental market performance - Q3 2020

publication date: Dec 9, 2020
 | 
author/source: Kate Faulkner, Property Expert and Author of Which? Property Books

Current rental market performance - Q3 2020

 

Summary of rental reports - report headlines

Belvoir
For all offices in England, Wales and Scotland which have been trading consistently for over eight years, the average rent for Q3 2020 is £747 per month - a slight decrease of around -1% versus Q3 2019. Comparing Q3 2020 to the annual average rent for 2019 of £755 per month, this also shows a slight fall of around -1%.

Rightmove
Record rents outside London & demand shift creates challenge for smaller flats.

Hamptons International
Rural rents rise as cities record annual falls.

ARLA Propertymark
Number of tenants experiencing rent increases down 18 per cent year on year.

Homelet
The average rent in the UK is now £974, down 1.3% on last month, but up 2.2% on last year.

Hometrack
Demand is still outstripping supply in many markets, underpinning rental growth.


When we first started writing about rental reports, there was hardly anyone tracking the market. Now we have some excellent data sources which help us understand what’s actually happening in the market – and it’s probably very different to what the government, MPs, tenant groups and tenants themselves think or feel.

The first index which shows ‘advertised’ rents is from Rightmove, which covers the UK, bar Northern Ireland and doesn’t include London, suggests an annual change just ahead of inflation, while quarterly trends showing lower figures likely to be influenced by the impact of Covid.

 

Current market performance by countries

National average asking rent for all property types - Rightmove

(Data for England/Scotland/Wales, excl Greater London)
Source: Rightmove


Government data on the rental market
One of the best indices is the government’s own rental index which tracks rents for the UK and the individual countries. Over time, this will allow us to take a look at the effect of the very different rental policies and their impact on rents.

One thing that is very clear is over the last five years, Northern Ireland and England rents have increased a lot more than Wales and Scotland, despite the fact that the latter countries have the ‘harshest’ letting regime. The question is, why have rents been held back when they were expected to rise due to landlords exiting the market because of harsher rental rules and regulations? The likely reason behind this is we know that rents are tied to wages, so if they are growing at a lower rate in Wales and Scotland, this would be a key reason for rents rising less.

 

ONS - Index of private housing rental prices for countries in the UK Jan 15 to Oct 20

Source: ONS


As with our historic analysis of rents, the government data makes it clear that over the last five years, with inflation running at 12.8%, not one of the countries has seen average rents rise as much as general inflation and in Wales and Scotland, rents, in real terms, have fallen for landlords versus tenants quite substantially.

Belvoir index
For all Belvoir offices in England, Wales and Scotland which have been trading consistently for over eight years, the average rent for Q3 2020 is £747 per month - a slight decrease of around -1% versus Q3 2019. Comparing Q3 2020 to the annual average rent for 2019 of £755 per month, this also shows a slight fall of around -1%.

Source: Belvoir

 

Hometrack data shows London rents far more volatile than rents outside of the Capital

Hometrack/Zoopla - change in average rents

 

The Zoopla research which tracks changes in rents shows how important it is to take London out of any UK or England rental data as it clearly skews the changes. Overall, in the UK, excluding London, since 2008, rents started falling through to 2010 and since then has seen rents rise around 1-2% with a bit of recovery during 2015 and 2016, followed by the long term trend of rents rising around 2% per year.

What this shows is that London rents are far more volatile than the rest of the UK. This is likely to be influenced by the Prime Market which can be very up and down, but also Londoners are typically better paid, allowing for more increases.

The recent fall in London is likely to be caused by two things. Firstly, an increase in supply as landlords in the serviced accommodation market have switched their portfolio to the long term rental market. The second reason is lower demand as Covid has allowed people to move further out of London while commuting has been brought to a halt, particularly as tenants have the flexibility to do so due to six month ASTs.

Wales
Feedback from Ben Davies of Belvoir Swansea suggests that demand increased during Q3 2020, however, rental levels are expected to remain unchanged for Q4 2020 with demand decreasing. Swansea has a shortage of one bed flats and an oversupply of two bed flats.

Northern Ireland 
We don’t sadly have data for Northern Ireland on rents, but we do have the following feedback from Trevor Burns of Belvoir Newtownards, who confirmed increased rents and demand for all properties during Q3 2020, with this trend likely to follow into the next quarter due to a lack of supply and continued high tenant demand. The Newtownards office is experiencing a shortage of all types and sizes of property.

Scotlandplease see our separate report

 

Regional current market performance

Just as property prices are becoming more individual to an area, so are rents, although they don’t tend to be as diverse.

Rightmove
Asking rents outside London have been driven to a new high, fuelled by record demand from tenants, and by strong price growth in the South West and northern regions. Asking rents are up 4% in the South West and up at least 3% in the North East (+3.3%), North West (+3.1%) and Yorkshire & the Humber (+3.0%). The trend reported last quarter of London rents weakening has continued over the past three months, with prices now 3% lower than Q3 2019 in the capital, down 6.8% in Inner London and up just 0.8% in Outer London.

Belvoir
The latest recorded monthly rental statistics show rents range from £607 in the North East, £680 in the East Midlands, £811 in the South West, through to £1,089 in the South East and £1,600 in London. For more detailed information on rental averages, read the LandlordZONE article here and the full Belvoir Rental Index.

Hamptons International

Hamptons look at newly advertised rents, which tend to be higher than actual rents as when renewed, landlords rarely increase the rent to the existing tenant.

On a regional basis, rents outside London continued to accelerate, with prices in the North of England reaching a record high. The average rent in the North rose to £689 pcm in October, up 5.9% on the same period last year. This set a new record for average rents in the three Northern regions (North West, North East and Yorkshire and Humber), as well as the highest rate of annual growth since our index began.  Rents in the South West also increased 5.9% year-on-year, marking the strongest growth since October 2015.

Meanwhile London and Wales remained the only regions where rents fell.  Average rents in the capital fell -0.6% year-on-year in October, a smaller fall than the 2.9% annual drop recorded in September.  But although rents in London seem to be recovering, the gap between rental growth in Inner and Outer London has widened further.

Rents in Outer London rose 3.3% in October, nearing pre-pandemic levels, while rents in the Inner London, likely to be mostly the prime market fell -14.9% YoY.  Last month the average rental property in Outer London cost 18% less than one in Inner London.  In October 2019 this figure stood at 32%.   

 

Source: Hamptons International

 

ONS, Index of Private Housing Rental Prices
This is probably one of the most robust rental indices as it has one of the largest databases and is produced by very clever government statisticians! However, it only tracks the increases/decreases as opposed to quoting the average rents.

Focusing on the English regions, the largest annual rental price increase in the 12 months to October 2020 was in the East Midlands, at 2.4%, down from 2.6% in September 2020. This was followed by the South West and the West Midlands, both at 2.3%. The lowest annual rental price growth was in London where rental prices increased by 0.9% in the 12 months to October 2020. This was followed by the South East, at 1.1%.

 

ONS - Index of Private housing rental prices percentage change over the 12 months to Oct 20 by English region

Source: ONS

 

Homelet
Homelet pretty much reflect the other indices, with a few more highs and lows than the ONS and other data sources but matches more closely with the Hamptons index, which monitors the new lets as opposed to existing tenancies.

Having worked with rental data on a monthly basis, I would ignore these figures as I found the month on month rental data was too volatile, hence using quarterly for Belvoir.

Ten of the twelve regions monitored showed an increase in rental values between October 2019 and October 2020, with the South West seeing an increase of more than 6%. Average rents in London are down YOY, showing a 3.7% fall between October 2019 and October 2020, the fifth decrease in annual variance in subsequent months.

 

Homelet - regional rents

Source: Homelet

 

Hometrack
Hometrack has been producing some fantastic market reports this year and their rental one is probably one of the most informative and useful ones to read.

According to their latest index: rental growth is being underpinned where demand is outstripping supply. In the North East, rental demand was 54% higher in Q3 than the average in previous years, while supply is down 9% compared to the typical levels seen in Q3 in 2017-2019. The region is seeing the strongest rental growth at present, at 3.2%. Rental growth is in positive territory in all other regions except Scotland and the West Midlands, which have other factors affecting the dynamics of the market.

 

Hometrack/Zoopla - demand, supply and annual rental growth

 

Current market performance in the towns and cities

Belvoir
As we are aware rents are not always reflective of what’s happening at regional level, as such when producing the rental index, we make sure we get detailed feedback from a selection of the offices around the country

South East - Harlow
Paul Harten of Harlow reported increased rents for flats during Q3 2020 due to a shortage of properties available across the board, however, house rents remained unchanged due to fewer tenants. Tenant demand increased for both flats and houses. Rents and tenant demand are expected to remain stable during Q4 2020. For the full details, read the Index here.

South East - Brighton and Hove
Nathan Crombie of the Brighton and Hove office reported increased rents and demand for houses and flats during Q3 2020 and anticipates rents to continue rising over the next quarter, with demand decreasing. The office has a shortage of studio and one bed flats, and an oversupply of two bed flats.

South West - Devizes
For Q3 2020, David Devlin reported increased rents and demand across the board with this trend predicted to continue into Q4 2020. Devizes is experiencing a shortage of all property types.

East Midlands - Melton Mowbray
Charlotte Baker reported increased rents across the board due to demand outstripping supply for Q3 2020. Both demand and rents are likely to continue rising during Q4 2020. Melton Mowbray has a shortage of two, three and four bed properties.

West Midlands - Stoke on Trent
Ramona Hirschi reported static rents for flats during Q3 2020, with house rents increasing in Stoke on Trent. Tenant demand also increased for flats and houses but declined for HMOs. Looking to Q4 2020, rents and demand for flats and houses is expected to increase but decrease for room rents.

North East - Tynedale
John Redden of the Tynedale office confirmed that flat rents stayed the same during Q3 2020 whilst all houses saw rent increases as they became available – on average, around 3-4 %. Over the next quarter, it is predicted that houses will remain in short supply and demand to stay strong from people looking to move from the Newcastle area. For the full details, read the Index here.

North West - Burnley
According to Michael Green of Burnley, rents for flats and houses increased across the board due to a shortage of all property stock during Q3 2020, with demand also increasing for all properties. Looking to the next quarter, it is predicted that rents are likely to remain unchanged but demand increasing for all properties.

Yorkshire - Doncaster
According to Chris Duffy of Doncaster, during Q3 2020, rents increased for flats and houses due to a lack of stock. Tenant demand also increased for all properties. Rents are expected to continue rising over the next quarter due to the high demand/shortage of stock, however, demand is likely to remain stable.

For the full Belvoir report, including all the individual office commentaries, read the Index here

Hometrack
In Scotland, rental growth in Glasgow is still positive at +2.4%, but in Edinburgh, the 1.6% fall in rents reflects muted tourism and the shift from short-lets to long-lets. In Aberdeen, the market has been affected by the travails of the North Sea energy industry.

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.

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.

Hometrack

Source: Hometrack

 

Also take a look at our:

 

    For more information about the rental statistics, read our Appendix

    How to choose a letting agent -

    Rentround

    How well is your property
    portfolio performing? -

    Lendlord

    Pros and cons of letting a property -

    Belvoir

     How to choose a letting agent checklist How well is your property portfolio performing checklist Pros and cons of letting a property checklist

     


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