UK rental growth hits 13 year high as demand doubles in major cities
16th November 2021
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Acute rental demand over Q3 2021 has pushed UK rental growth to its highest level since 2008
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Demand continues to outstrip supply, which is running at 43% below the five-year average - exerting an upward pressure on rents
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Average UK rents are now tracking at +4.6% on the year [and 6% excluding London], after climbing 3% over the last quarter - with rental demand doubling in central Leeds, Manchester and Edinburgh and London in Q3 v. Q1
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Rental growth is close to, or at, a 10-year high across most UK regions - except for in London and Scotland
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After 15 months of consecutive falls, London’s rents have swung back into positive territory, rising by 4.7% between June and September, as offices reopened and city life resumed
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The structural undersupply of rental properties across the country and the strength of the employment market will support rental growth into 2022
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UK rental growth [excluding London] is set to ease slightly to 4.5% by the end of 2022
Tuesday 16th November, 2021, London: UK rental market growth has reached a 13 year high as renters rush back to city centres, reports Zoopla, the UK’s leading property portal, in its quarterly Rental Market Report.
Record price growth defines new era for the UK rental market
Acute tenant demand over the third quarter of 2021 has propelled UK rental growth to its highest level for over a decade [13 years].
The market is being shaped by an ongoing supply and demand imbalance, with demand continuing to outstrip supply, which is running at 43% below the five year average and exerting an upward pressure on rents.
The imbalance has been compounded by both long-term structural issues such as landlord divestment following the 3% stamp duty levy introduced in 2016, and more the immediate post-lockdown demand, which collectively have eroded available supply.
Average UK rents are now tracking at 4.6% year on year, after climbing 3% over the last quarter. Excluding London, where the market has lagged, average UK rental growth has reached a 14-year high of +6%.
Rental growth is also explained in part by tenant demand moving up the price bands [see figure 1]. This reflects the ongoing search for space, which has not only characterised the sales market, but the rental market, too.
Figure 1
Affordability remains steady - despite pan-regional rises
UK monthly rents now account for 37% of an average income for a single tenant occupant; however, even with strong rental growth, the measure of affordability remains in line with the five year average [see figure 2]*.
The regions registering the highest levels of rental growth are among those that are the most affordable when compared to the UK average, and as such, there has been more headroom for rents to increase.
Rental growth is close to, or at, a 10-year high across most UK regions - except for in London and Scotland. Rents are up most in the South West (9%) year on year, followed by Wales (7.7%) and the East Midlands (6.9%).
In many of the UK’s largest cities, annual rental growth is running well ahead of the five-year average rate of growth. Bristol leads with 8.4% growth in the year to September, followed by Nottingham at 8.3%, and Glasgow at 7.2%.
Rental demand in the central zones of Manchester, Edinburgh and Leeds has at least doubled over Q3 compared to Q1, and in Birmingham demand has increased by 60% - buoyed by the return of office workers and students, and the lure of city life.
Figure 2
London rents rebound into positive growth - but remain lower than pre-pandemic levels
After 15 months of consecutive falls, London’s rents swung back into positive territory, up +4.7%, in Q3. This amounts to annual growth of +1.6% compared to falls of almost 10% at the start of the year.
As with other major UK cities, market activity rose significantly in Q3, with tenancies agreed in London running 50% above the five-year average, underlining the bounceback in the market as offices reopened and city life resumed.
Despite this upward trajectory, given the falls over the last 18 months, average London rents are still 5% lower than they were at the start of the pandemic.
Rents forecast to rise by a further 4.5% by the end of 2022
Looking ahead to the new year, the structural undersupply of rental properties across the country is expected to support rental growth into 2022.
In addition, the supply shortage coupled with the strength of the employment market which, despite the pandemic, is set to remain robust, will in turn support demand and sustain rental growth.
While the level of rental demand might ease in the near term in line with seasonal trends, demand levels will remain higher than usual, especially in city centres, where there is an element of pent-up demand being released.
On the supply side, rental stock will remain tight, amid lower levels of investment into the sector by landlords, and this will underpin rental pricing. There is more leeway for stronger rental growth in areas of the country where rents are relatively more affordable, suggesting that rents could rise above earnings outside of the south of England, supporting rental growth across the UK excluding London at 6% in 2021 and 4% in 2022.
Meanwhile, London rental growth is expected to pick up to 3.5%, with rents ultimately exceeding pre-pandemic levels.
Gráinne Gilmore, Head of Research, Zoopla, comments: “The swing back of demand into city centres, including London, has underpinned another rise in rents in Q3, especially as the supply of rental property remains tight.
“Households looking for the flexibility of rental accomodation, especially students and city workers, are back in the market after consecutive lockdowns affected demand levels in major cities.
“Meanwhile, just as in the sales market, there is still a cohort of renters looking for properties offering more space, or a more rural or coastal location.”
*The methodology Zoopla has used to calculate affordability has changed from the last quarter; Zoopla is now using ASHE data, and previously used the Labour Force Survey.
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