Despite ongoing uncertainty, we expect the UK rental market to remain resilient as demand for rental properties will likely continue to grow throughout 2021. Recent figures from Zoopla back this up showing demand for rental property continues to rise across the UK, with total demand from renters in January some 21% higher than the same month last year. The Royal Institute of Chartered Surveyors also report an increase in demand and project rents to rise by 2% at the national level. At the same time, the supply of homes to let is more constrained, falling by 11% over the same period, and putting upward pressure on rents in many areas. The ONS in their latest index report that rents across the UK grew by 1.4% and 1.7% if London is excluded, in the 12 months to February 2021 with rents in Scotland increasing by 1.1%.
At a regional level the picture is more patchy as local factors affect the market in differing ways, an example of this is Edinburgh where we have experienced a large amount of short term rental (STR) stock being shifted to the Private Rented Sector (PRS) which has created an oversupply in some locations and downward pressure on rents.
With the vaccine roll out progressing well and a roadmap out of lockdown announced there is at least light at the end of the tunnel in terms of a relaxation of restrictions and a return to some kind of normality. There is an expectation that the STR sector will see a boost in demand for staycations since foreign travel is likely to remain difficult in the short to medium term. This will perhaps tempt some landlords back into the holiday let sector which in turn will mean a reduction in stock available in the PRS and the market will stabilise.
Looking at the local economic picture we believe Edinburgh is better insulated against economic shock than other locations. A recent Demos-PwC Growth for Cities report reinforces this view with Edinburgh being forecasted as the UK city least impacted economically by the COVID-19 pandemic. The report suggests that the Scottish capital is expected to see its economy shrink by -9.1% in 2020, a less severe impact than in any other UK city.
While this level of decline is of course a concern, the fact that Edinburgh has fared 2% better than the average UK city decline of 11% is some welcome news for business and property owners in the capital.
We believe that the outlook for the PRS in Edinburgh remains buoyant, the city is expected to continue to grow in size with the number of households with in the sector expected to increase by between 15,000 to circa 24,000 households by 2041. We also expect the oversupply stock to filter out and the market to stabilise over the next 12 months as STR migrate out of the PRS as demand for holiday accommodation rebounds once we people are able to start travelling.