Tenants competing for reduced levels of supply is placing upward pressure on rents
Following five-years of declines or stagnant growth, Strutt & Parker’s latest housing market forecast reveals the Prime Central London rental market is set to grow by up to 10% in 2022, in response to soaring demand from tenants against a shortage of available properties.
In Q1 2022, the average rent in PCL rose by 3.3%, outstripping the rate of growth in the sales market and marking the fourth consecutive quarter of upward rises. Annual growth reached 10.7% to Q1 2022. This has been driven by a growing supply-side shortage; transactions have suffered -42% year-on-year growth for the second successive quarter.
Rents have increased most significantly in the one and two bedroom sector of the market, the same sector most heavily impacted by rent reductions during the pandemic. With international movement returning, and a lack of supply across all brackets, some homes are achieving up to 25% higher rents today compared with the start of 2021.
Louis Harding, head of London Agency at Strutt & Parker comments, “The PCL rental market is facing an even more acute shortage than the sales market. This is a symptom of tenants renewing contracts in the wake of a lack of suitable sales stock, and a depleted level of property re-entering the lettings cycle. We have also seen a wave of would-be tenants returning to the city as pandemic restrictions have lifted, while some buyers are biding their time in the rental market to see how the current economic situation may affect the sales market, both adding further pressure. Bidding wars for the best rental homes are now common place, rather than a rarity. Two years ago landlords were making bold concessions to retain and attract tenants including rent reductions and generous break clauses. Today it’s the tenants making concessions: committing to longer contracts and, in some instances, offering significant amounts of rent up front.”
By comparison, Strutt & Parker’s analysis of the sales market in the first quarter of the year in PCL show values rose by 1.1%, the first time prices in this market have increased at a rate of above 1% since Q1 2014.
Strutt & Parker’s Property Outlook
Area | 2022 | 5 Yrs to 2026 | ||
Downside Risk | Best Case | Downside Risk | Best Case | |
Sales | ||||
Prime Central London | 5% | 10% | 20% | 35% |
UK | 2% | 7% | 20% | 30% |
Lettings | ||||
Prime Central London | 5% | 10% | 15% | 25% |
The property consultancy maintains its remaining 2022 house price forecasts ,despite the economic constraints of rising costs of living, inflation, and an increased interest rate, underlined by global geopolitical uncertainty. UK house prices remain on course to rise by up to 7% this year, with Prime Central London prices set to grow by up to 10%. Its five year forecast also remains unchanged,with UK house prices expected to rise between 20% and 30%, and Prime Central London of between 20% and 35%. Prime Central London lettings five year forecast is maintained at a rise of between 15% and 25%.
Vanessa Hale, head of Research at Strutt & Parker comments, “Buyers and tenants are still navigating the lay of the land as the nation learns to live with Covid-19, driving pressure on sales and lettings markets alike. While wider economic commentary has shifted away from the pandemic and into the ‘new normal’, there’s an undeniable backdrop of geopolitical uncertainty in hand with rising costs of living and inflation. Despite exceptional growth over the past two years across the national market,the brakes may well be applied as households tighten their purse strings and tap into savings in the face of soaring household costs.”
Guy Robinson, head of Residential Agency at Strutt & Parker comments, “Current market sentiment is mainly driven by a hangover of overwhelming pent up demand in 2021, with strong levels of transactions in the sales market during the first quarter of this year. There are headwinds on the horizon, but any impact on house prices has not yet been realised as post-pandemic behaviours continue to fuel a market dominated by a lack of stock. Outside London, transaction number shave remained robust, while a return of Prime Central London activity has seen transactions continue to rise, albeit incrementally, signalling a revival of the capital.”
Kate Eales, head of Regional Agency at Strutt & Parker comments, “In my 20 years in the industry, the current lettings market is as overheated as I’ve seen. With a substantial withdrawal of PRS stock, at an estimated 300,000 units, there’s been a rise in stiff competition from those who are seeking property across all parts of the UK and a subsequent hike in rents achieved. Meanwhile, sales prices are being buoyed by a lack of stock and continued activity across all regions of the UK. Those with fast moving markets in this first quarter, comparatively to 2021, include the likes of Shropshire, Yorkshire and Kent, as home movers continue to look to the less well-trodden landscapes in search of more space.”