The UK rental market has seen a surge in 2022, with the average rent climbing from £1,064 in January to £1,175 in November – a 10% jump in less than a year, according to the HomeLet Rental Index (November 2022). This growth has been driven by a resurgence of London living and an increase in the number of renters looking for homes. But what does 2023 hold for the UK rental market? Here’s what property professionals need to know.
Rents on the Rise
UK rents are expected to rise 4% in 2023, driven by an ongoing imbalance between rental demand and market supply in rental properties. Strong rental growth is forecast in major urban areas as students and young professionals return to the big cities after Covid-19.
Manchester, one of the fastest-growing economies in the UK, is predicted to have the strongest rental growth with rents in the area expected to increase by 6%. Birmingham and Bristol are expected to follow, with rental growth of 5% and 4% respectively. Meanwhile, rents are forecast to rise by 3.5% in Leeds and Liverpool, and 1% in Edinburgh and Glasgow.
In London, rents this year are predicted to climb 6% in the heart of the city and 4.5% in the outer areas. This trend of strong rental growth in city centres looks set to be echoed across the UK.
House Prices Sluggish, But City Centres Shine
The UK housing market is expected to be sluggish in 2023. A combination of higher rates, poorer sentiment, and the cost of living squeeze is likely to result in a fall in house prices and property sales. UK-wide house prices are predicted to drop 6% before recovering in 2024.
However, the outlook for the UK’s city centres is much brighter. House prices are expected to grow in many of these areas, eclipsing the wider housing market. House price growth is predicted to stand at 0.5% in Bristol, 1% in both Birmingham and Edinburgh, and 1.5% in Manchester. Central London is forecast to have the highest level of house price growth of any UK housing market, with values expected to climb 2.5%.
High Rental Demand Continues
High demand for rental properties is set to continue in 2023. The cost of living squeeze and higher mortgage rates are likely to delay some aspiring homeowners from buying their first home. The end of the Help to Buy scheme in March is also expected to lead to some renters staying in the rental market for longer.
The rising cost of living is also likely to shape the types of properties renters are drawn to. Energy-efficient new-build city centre homes are set to be particularly sought after as renters try to keep a lid on energy costs. Up to 85% of renters in the JLL Tenant Survey Report say the environmental efficiency of their property is important to them.
Supply of Homes for Rent
Strong rental demand, rising rents (outperforming house prices), and low or almost non-existent voids will all encourage landlords to remain in the market in the short to medium term. Some landlords, particularly well-financed ones, could see a window of opportunity to snap up properties at potentially reduced prices.
However, landlords do face challenges, such as higher rates, changes to capital gains tax rules, and proposed new legislation. There will be some who chose to exit the market.
Capitalizing on the Growth of the Rental Market in the UK: Projections for 2023 and Beyond
The UK rental market is a dynamic and ever-evolving landscape, with numerous opportunities for savvy property professionals. As we move into 2023, the market is set to continue its growth trajectory, with several key trends and projections shaping the future of the industry. This article will delve into these trends, providing insights and actionable strategies for capitalizing on the growth of the rental market in the UK.
The Rental Market Landscape
In the first quarter of 2023, the UK Build to Rent sector saw £820 million transacted, making it a significant player in the European investment market, second only to Germany. This figure, although lower than Q1 2018, is indicative of the robustness of the UK rental market, even amidst economic uncertainties (source).
The Single Family Housing (SFH) sector, in particular, had a record quarter with nearly £500 million invested. This surge in investment, coupled with strong operational performance, is stabilizing yield sentiment and supporting liquidity in the market.
The Growth of Build to Rent
The UK’s Build to Rent stock now stands at 82,500 completed homes, with a further 49,500 homes under construction. There are an additional 119,300 homes in the pipeline, including those in the pre-application stage. This brings the total size of the sector to 251,200 homes completed or potentially in the pipeline.
Despite the economic headwinds facing the wider construction sector and residential development market, the Build to Rent sector has shown resilience. The strong starts in 2021, especially in the regions, have resulted in approximately 33,900 homes in the construction pipeline, alongside a further approximately 15,600 homes in London.
Navigating Regulatory Risks
Regulatory risks are a significant concern for investors in the UK rental market. Speculation continues as to whether the UK rental market is likely to see rental market reform. However, professional landlords are well-positioned to navigate this potential new environment. For example, the biggest players in the sector already increase rents in line with inflation and offer rolling tenancies.
Capitalizing on Market Growth
To capitalize on the growth of the rental market in the UK, property professionals should consider the following strategies:
- Stay Informed: Keep abreast of market trends and projections. Regularly review research and reports from reputable sources, such as Savills’ UK Build to Rent Market Update.
- Diversify Investments: Consider investing in both the Build to Rent and Single Family Housing sectors to spread risk and maximize potential returns.
- Understand Regulatory Changes: Stay updated on potential regulatory changes and understand how they may impact your investment strategy.
- Focus on Tenant Needs: With the rising cost of living, energy-efficient homes in city centres are becoming increasingly sought after. Ensure your properties meet these needs to attract and retain tenants.
- Leverage Construction Opportunities: With a significant number of homes in the construction pipeline, there are opportunities to invest in new developments or fund operational deals.
In conclusion, the UK rental market presents a wealth of opportunities for property professionals. By staying informed, diversifying investments, understanding regulatory changes, focusing on tenant needs, and leveraging construction opportunities, you can capitalize on the growth of the rental market in the UK in 2023 and beyond.