Over the next year or so, it’s likely to that rents will stagnate – even though some are predicting continued rises. The reason being is that rents are very much tied to wages and it’s hard to see how these will increase that much next year.
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 There will also be more turnover in some parts of the market once the eviction bans are repealed into next year.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.
These are Savills’ predictions which for me are a little high for 2021, but the outlook after that seems to be fairly realistic.
Survey respondents identified the cities where they saw the biggest opportunities in each sector. When examining the top three cities in each market, London, Bristol and Edinburgh emerge as opportunity areas across all three sectors.
This suggests an overlap of the different drivers for each sector to provide a favourable investment environment – from strong student demand, large-scale city regeneration and development as well as strong employment conditions, and a lack of senior living units.
When asked whether the residential investment sector will outperform all other real estate sectors in 2021, 44% of respondents said yes. This rises to 70% who think residential investments will be the top performer over the next five years, highlighting the long-term opportunity afforded by the sector underpinned by favourable demographic and tenure shifts. Read their investment report here.
Source: Knight Frank
Tenant demand will continue to exert upwards pressure on rental values in UK mainstream rental markets during the next five years and the largest cumulative growth is forecast to take place in the capital. We expect rental value growth to gain momentum after 2020 as more political certainty returns to the UK after it enters the transition phase in 2020.
We forecast a similar pattern in prime London rental markets, with rental value growth over each of the following five years. Read Knight Frank’s forecasts here
Source: Knight Frank
We expect a modest fall in rents this year, with a similar decline in 2021. The pace of falls will level off by the end of 2021 and we expect rents to rise by 2.5% in 2022, keeping up with house price growth.
Rental growth will decelerate more sharply in London than anywhere else due to a combination of factors unique to this location. The decline may be most severe in prime central neighbourhoods. But there should be a relatively rapid bounce back.
In other regions, tenants will face rising job insecurity; some will be earning less. But the stock of rental properties is considerably lower than in London and tenant demand almost exclusively domestic. This lack of supply may serve to put a floor under rents. Rental growth will remain concentrated across the Midlands and the North, where purchases by landlords remain at historically low levels. Read the full report here.
Read our latest comprehensive rental reports here:
For more information about the rental statistics, read our Appendix
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