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The Rental Market

In Zooplas most recent rental market report is was found that demand for rental property rebounded by 30% in the first two weeks of April, although it is worth noting that this hike comes off a low base following the impact of coronavirus, which saw a 57% fall in demand for rental housing in the two weeks to 30th March.

This rather suggests that people are looking to rent rather than buy at the moment in light of the uncertainty created by the pandemic. Therefore, this reinforces our view that the rental market is more dynamic, flexible and better insulated against shocks to the wider housing market and underlines the defensive, counter-cyclical qualities of rental housing as an asset class.

Bounce Back

It is for the reasons given above that activity has bounced back more quickly than other parts of the property market. The rise in demand in the first two weeks in April indicates that some tenants are already planning their next move. Furthermore, increased uncertainty means households looking for a home may well turn to the rental market first to meet any immediate housing needs.

Activity levels are likely to rise more quickly in the UK rental market than the sales market once the coronavirus lockdown eases, given that the average ‘time to let’ is less than three weeks in usual market conditions, compared to the three months average to complete a sale. Once lockdown restrictions ease, it is projected that activity levels will rise and could match previous years’ levels in the typically busier seasonal periods in Q3 and Q4, meaning that the total number of moves within the rental sector will be end up approximately 25% lower than in 2019.

Tenant Demand

But there is a question as to who is going to meet this demand for rental housing? Over the last few years there have been increasing regulatory, legal and tax burdens placed on landlords which has led to many exiting the market.

In data recent released by ARLA Propertymark it was revealed that demand for rental accommodation reached a record high in January with an average of 88 prospective tenants registered per member branch. The figures show that agents have witnessed a 57% increase in the number of prospective tenants registered since December.

But at the same time and as we have mentioned there has been a constriction in supply as landlords exit the market. ARLA also reported that the number of properties managed per branch fell from 206 in December to 191 in January. Supply has not been this low since July last year when it stood at 184. Year-on-year supply is down from 197 in January 2019, but up from 184 in January 2018.

The result of this is we believe there is still likely to be a shortage of supply which will be further exasperated as some landlords are perhaps forced to sell due to the fallout from the pandemic which should mean demand and rents will remain stable.

Rental Growth

According to the latest Zoopla rental index, the annual rate of UK rental growth flattened in March reflective of seasonal trends rather than ramifications of the coronavirus lockdown. Rents were up 2.4% on the year, compared to 2.5% annual growth in February and the 2.3% recorded in December 2019.

The result is we do not expect there to be a significant fall in rental values rather perhaps a downwards readjustment to the UK headline inflation figures but they are forecast to remain in positive territory.

In summary there is likely to be fallout from the economic impact of Covid-19 on the rental market but the underlying fundamentals remain strong and we believe the market is resilient and better insulated to weather any short to medium term turmoil. We would expect demand levels to remain robust but rental growth to slow.

If anyone would like to get in touch for a chat about the market and renting please do get in touch with us here.

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