25 Nov UK private residential rents set to increase by 16% in next five years
Residential property rents across the UK, which have been rising since 2010, are expected to rise by 16% by 2018, according to a new report from Knight Frank. It points out that the pace of growth as been more modest since early 2012 but there is room for rental inflation as earnings growth starts to gain momentum across the UK in the coming years. There has been speculation that the support offered under the UK government’s popular Help to Buy scheme could have a significant negative effect on the rental market but Knight Frank thinks demand for rental properties will remain high.
‘While taxpayer subsidies for mortgages may weigh on rental demand and rental growth in some areas over the next two years, high demand for rental property, especially in and around the main urban centres, will mean continued growth in the sector,’ said Liam Bailey, global head of residential research.
‘Rising interest rates will put some further upward pressure on rents from 2015 to 2016, as affordability levels for home ownership are eroded. Our view is that rental growth from 2016 may start to outpace house price growth, driving yields, and attracting additional buy to let investment,’ he added.
The report shows that the private rented sector has doubled in size across the UK since 2001, and now accounts for close to five million dwellings, or 17% of total housing stock. If this trend continues, the size of the sector will swell to six million in 2017.
According to Bailey the sector itself is also likely to develop in the next five years, with a step up in the delivery of specifically designed rental blocks, in contrast to much of the existing stock which is primarily aimed at owner occupiers.
‘These new blocks, backed by institutional investment, will be more akin to the new modern purpose build student property accommodation being built in university towns than many rental flats currently on the market. The apartments are designed specifically for rental accommodation and will come with a range of amenities attractive to tenants. The delivery of large scale private rented units will help boost housing supply, and cement the rental sector as a major part of the UK’s housing stock,’ he explained.
The report also points out that in central London, prime rents have underperformed the national average, with an overall decline of 1.7% in the 12 months to October 2013. ‘The weakness of the financial sector in 2011 and 2012 has been the main cause of this downward movement of rents. Our view is that rents will begin to rise modestly in prime central London in 2014, as renewed job creation an optimism, especially in the City, creates increased demand from tenants,’ Bailey added.
Meanwhile, a separate piece of research suggests that the cost of renting in London is over 200% more expensive than the average for the whole country. The analysis from property firm Move with US says that the average cost of renting a property increased by just £7 or 0.75% in October.
Advertised average rents in London increased by 1.47% or £32 and are £42 down on last year but are approximately 209% more expensive than the rest of the country.
The report also shows that throughout the first half of the year, both the South East and East Anglia experienced consistent growth in average advertised rents to the extent that they became a more viable and profitable alternative for investors than the London property market.
While average rents in both of these regions remain strong, at £1,145 and £889 per month respectively, the markets appear to have settled somewhat as we approach the end of the year with minimal declines of 0.13% and 0.6%.