The private rented sector saw its fair share of market disruption over the course of the pandemic, as our relationships with our own living space underwent a dramatic transformation. Where our homes were once just places to eat and sleep, renters were forced to re-evaluate their space as a working environment, space to exercise, socialise and, even home-school. While the same was clearly true for home-owners, the flexible nature of renting meant the sector saw far more movement than the wider housing market, with renters reaching the ends of their contracts having the freedom to make decisions about relocating that were, at that time, impossible for many tied to mortgages.
In a world that’s still coming to terms with a global health pandemic, it’s becoming clear that our relationship with our homes and priorities when choosing where to live have shifted. But what does this mean for the private rented market? Let’s explore.
Supply and demand
The rental market is growing in demand, and in London alone, renters already outnumber homeowners. The November 2021 Zoopla Rental Market Report shows a 4.6% rise in UK rents, with demand for properties fast outweighing demand. Rental growth is now at its highest level in 13 years. However, this trend is not unusual during periods of economic uncertainty. During the 2008 recession, the private rented sector increased from just over 13% to 20%, where it currently sits today. The flexibility of renting is a huge draw during unstable times, and the trends in demand are far from unexpected. However, this does not detract from the immediate and growing need to meet that demand from a supply perspective.
Build-to-rent (BTR) is one solution to the supply-demand problem, and by Q1 2021, after a year of pandemic and lockdown, the sector showed signs of being on the brink of a post-pandemic boom with an all-time high of planning applications submitted, up 52% on the year. There are a number of reasons BTR is so attractive: the homes are new, professionally managed, eco-friendly and built-to-purpose, taking into account the shifts in priorities for the post-pandemic home – i.e. the desire for outside space and smaller, segregated rooms that can be utilised for home-working. Not being tied to a mortgage is another key drawing point, with people becoming increasingly at ease with the freedom that comes hand-in-hand with renting. In fact, the predicted appetite for these homes is so high that nearly £425 million was invested into UK BTR properties during Q3 2021.
So, what’s the hold up? The rental market was already booming before the pandemic, and though there’s little doubt that the last two years have exacerbated that trend, property supply is still falling well behind where it should be. This can also be attributed, at least in part, to the pandemic which has a had a huge and ongoing impact on the rate of building across the UK, with social distancing, isolation periods, labour and materials shortages all adding to delays in construction. Brexit is another contributing factor, with the latest figures from the Chartered Institute of Procurement and Supply showing the cost of everything from wood and steel to cement and concrete rose in August 2021 at the second fastest rate in the survey’s 24-year history.
As house prices in the UK continue to rise, generation rent is continuing to search within the private rented market.
However, it’s not just so-called generation rent causing the surge in rental demand. They are now being joined by a growing proportion of older households. Data from the Office for National Statistics (ONS) suggests we are very much in ‘the age of the renter’, with the number of renters aged between 45 and 54 having increased from 11% to 16% between 2007 and 2017. People in their mid-30s to mid-40s are now three times more likely to rent than they were 20 years ago.
Changing expectations of rental properties
What tenants want and need from their homes is changing, and landlords will need to adapt in order to retain interest as choice in the sector inevitably broadens over the next few years. Findings from property engine Zoopla have revealed searches for homes with ‘outdoor space’ have unsurprisingly seen a huge increase since the first lockdown. Proximity to desirable neighbourhoods with amenities such as parks and coffee shops are another priority, while fast internet is now considered a non-negotiable. A more surprising entry high on the Zoopla priority list is ‘all-inclusive bills’, giving tenants more certainty over their monthly outgoings. Pet-friendly homes also made a notable appearance.
Elsewhere, Quintain Living reports an increase in demand from single occupancy residents looking to increase their square-footage, with a significant rise in three-bedroom apartment leases. They also saw an increase in those wanting to add a little luxury to their living with cleaning, maintenance and concierge services all being highly sought after, particularly in co-living situations.
Shifting rental hot-spots
Shifts in renter priorities can be further seen in the way rental hotspots are changing, with people migrating from inner-city rentals in London and Edinburgh, to the likes of Bristol and Glasgow which have seen rental growth of 8.4% and 7.2%respectively since March 2020.
BNP Paribas Real Estate’s latest location analysis model, BTR City Live, has also further identified hot spots across the UK for BTR market growth, with over 10,000 units in the pipeline in Birmingham, 12,000 in Manchester and 5,000 in Glasgow. According to the BPF, the number of BTR units regionally has increased by around 16% in the last year.
The rise of hybrid working is giving people more options on where to live. Inner-city workers who only need to be in the office part-time are now more willing to travel on those working days, in exchange for a more laid-back lifestyle during the rest of the week. Such a move can also provide more square footage, better access to outdoor space and a better sense of community, all qualities the future renter has been seen to prioritise. It is true then, that the commuter belt is widening, offering landlords opportunity to invest further out in the sprawling suburbs as well as in those smaller towns and cities that might be considered too far to commute from on a daily basis. As we start to focus on life following the pandemic, it will be interesting to see the extent to which this particular trend will enable a new balance to form in the demand and value of the rental market across the UK.